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Asia Crude Outlook-Eases, Opec deal boosts supply

SINGAPORE: Spot premiums of Middle East crudes in Asia were seen slipping this week, as Opec's higher output deal fuelled expectations of additional availability, traders said on Monday. They said Middle East producers were expected to offer extra crude for May, after Opec agreed last week that nine of its members would raise output by 1.45 million barrels per day.

But more bearish was the possibility that producers would start exporting larger volumes of crude for April, for which all requirements were now covered, traders said.

Saudi Arabia had already begun adjusting its term sales to Asia, informing a few small lifters of its crudes they would get full contractual volumes in April.

Traders said there were concerns that other Middle East producers could follow suit, which would flood the Asian market with Middle East crudes.

Spot Abu Dhabi Murban crude for May last traded at a discount of nine cents per barrel to the Abu Dhabi National Oil Co (ADNOC) price, with traders expecting further pressure.

Last week, Abu Dhabi crudes traded at premiums of five cents to the price.

Spot differentials of Oman crude have also dropped to double-digit discounts against the Ministry of Oil and Gas (MOG) official price for May cargoes.

May Oman traded at MOG -5 cents last week.

TIGHT MALAYSIAN SUPPLIES SUPPORTIVE

But on Asian crudes, traders said premiums were likely to be stable, with a rise in arbitrage West African supplies offsetting the bullish impact of tight Malaysian availabilities.

They said May spot premiums of Malaysian Tapis, the regional benchmark for light grades, were notionally assessed around $1.20 per barrel over the Asian Petroleum Price Index (APPI).

But it was unclear if any spot Tapis cargoes would be actually available in May, due to technical problems which had cut the crude's output.

Traders said Tapis production had been 20,000-30,000 barrels-per-day (bpd) below normal levels since mid-February, and likely to remain down until at least May.

Lower Malaysian output had kept the overall light crude market in Asia bolstered, traders said.

Australian light Cossack crude for May lifting was currently talked at a premium of 60 cents per barrel to Tapis APPI, after the last trade done at Tapis APPI +50/+55 cents.

April Cossack traded at Tapis APPI +40/+45 cents.

"There are very little supplies left, people have got no choice but to pay up or buy West African crudes," said a Western trader.

But with the Brent/Dubai spread narrowing, traders said Asian refiners would turn increasingly to West African crudes to meet their requirements.

This would cap the rise in spot premiums of regional grades.

On Monday, the Brent/Dubai spread narrowed to around $1.00 per barrel, which opens wide the arbitrage window for the Brent-priced West African grades to head east.

A week ago, Brent/Dubai was about $1.60 per barrel, narrowing from a spread of over $2.00 seen earlier in the month.

West African crudes become attractive to Asian buyers when the spread narrows to about $1.50.-Reuters