Slumping Asian oil demand amid the coronavirus outbreak has led to a sharp drop in Middle Eastern and Asian regional crude prices, while prices for rival U.S. WTI Midland grade have risen due to new pipeline demand in Texas to the point of closing in the arbitrage for U.S. crude shipments to North Asia this month, S&P Global Platts reported on Wednesday, citing market sources.
In view of the weak demand in Asia, with Chinese refiners cutting run rates and China exporting more fuel, regional grades from Russia and the United Arab Emirates (UAE) have become cheaper than U.S. WTI Midland—a rare occurrence in the market.
Because of the pricier U.S. grade, shipping WTI Midland to Asia is now uneconomical, and the booking of cargoes from the U.S. set for Asia for arrival in May and June has slowed down in recent weeks, according to shipping reports cited by S&P Global Platts.
Earlier this year, there were a lot of cargoes booked for arrival this month and next.
But as the coronavirus shatters Asia’s oil demand, the premiums of Russian grades Sokol and Sakhalin to the Dubai benchmark have slumped over the past month, according to Platts data.
The Sokol grade is now at a premium of up to $4 a barrel to Dubai, half the premium compared to the premium for cargoes that loaded in January and are set to arrive in North Asia in March.
But WTI Midland is also valued at a premium of $4 a barrel to Dubai. Due to a rise in WTI Midland prices over the past weeks because of new pipelines taking oil out of the Permian, the U.S. grade which competes with the two Russian crudes in Asia is assessed this week at a premium of $4 to Dubai, U.S. crude traders told Platts.
Faced with a plunge in oil demand in Asia, oil suppliers are slashing prices to hold on to their market shares.
By Tsvetana Paraskova for Oilprice.com
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