Sokol field maintenance boon for Far East Russian crude oil premiums
A planned field maintenance at Russia’s Sokol field the in the third quarter has sharply reduced the number of Russian Sokol crude cargoes available for loading in September — a potential upside factor that could help extend the latest uptrend in cash differentials for Far East Russian grades, Asian traders said last week.
The preliminary September-loading program for Sokol crude showed that just three 700,000-barrel cargoes of the Far East Russian grade are scheduled to load in September, down from nine in August and a 67% month-on-month fall in volumes.
The latest program indicated that Indian upstream company ONGC Videsh Ltd. holds one cargo for loading on September 1, while Tokyo-based Sakhalin Oil and Gas Development Co., or Sodeco, would load a cargo around September 19.
Russian supplier Rosneft holds the third and final cargo for loading on September 23.
“It is quite a big maintenance … There will be a lot less cargoes,” said a crude trader based in Singapore.
The planned maintenance will likely take place sometime in the first week of September and it may last around two weeks, a source at a company with a stake in the Sakhalin-1 project told S&P Global Platts.
The Sakhalin-1 project comprises three offshore oil and gas fields Chayvo, Odoptu and Arkutun Dagi, located off the northeastern coast of Sakhalin Island in the Russian Far East.
SOKOL PREMIUM MAY EXTEND UPTREND
Cash differentials for Far East Russian grades, including Sokol, Sakhalin Blend and ESPO Blend, have recently been on a recovery path, thanks largely to renewed demand from Chinese independent refiners, and the limited September supply could help sustain the price uptrend, market participants said.
The tight supply also allayed concerns about the end of North Asian refiners’ peak summer demand season and many regional traders kept their bullish outlook for the Far East Russian grade.
“It is always wise [for producers] to conduct field maintenance during off peak [demand] season,” said a regional sweet crude trader.
Four regional traders surveyed by Platts said they expect September-loading Sokol crude cargoes to trade at premiums of between $2.1/b and $3.0/b to Platts front-month Dubai crude assessments, on CFR North Asia basis.
Last month, most of the August-loading cargoes changed hands at premiums of around $1.80-$2.10/b to Platts Dubai, CFR.
Price differentials for Far East Russian grades had been hovering near record-lows during late-Q1 and Q2, with Platts assessing Sokol at its lowest-ever premium of $1.40/b to the average of the first-line Dubai and Oman assessments, on CFR North Asia basis, on March 21.
Meanwhile, another Far East Russian Sakhalin Blend crude was assessed at an all-time low of Platts front-month Dubai plus 5 cents/b on March 22.
However, the tide began to turn from the previous trading cycle, as renewed demand from Chinese independent refineries, also known as teapots, came to the rescue.
Last month, Chinese state-owned trading company Unipec was said to have snapped up all available Sakhalin Blend crude cargoes in the spot market, throwing a strong message to the regional market that teapot demand has finally returned.
“I am sure at least one or two [of the five Sakhalin cargoes that Unipec had bought] will go to teapot refiners,” a North Asian crude trader said, pointing to China’s new round of crude import quotas announced in June.
SOME BUYERS MAY TURN TO LIGHT SOUR MIDDLE EAST GRADES
The lack of supply of middle-distillate-rich Russian crude could ranslate to stronger interest in light sour grades in the Persian Gulf spot market, as some North Asian refiners may seek alternatives.
Sokol crude, which has an API gravity of 39.7 degrees, with sulfur content of 0.18%, often competes directly with some light sour Middle Eastern grades like Abu Dhabi’s Murban crude, a similar grade coveted for its high yield of distillates such as jet fuel/kerosene.
Murban has an API gravity of 39.6 degrees, with 0.79% sulfur content.
When there’s not enough Sokol or other Far East Russian grades available in the spot market, “[North Asian end-users would look for] similar kind of light sour grades,” said a sour crude trader based in Tokyo.
Japan’s Fuji oil recently purchased at least one 500,000-barrel cargo of light sour Qatar Land crude, for loading in September, at a premium of around 10-14 cents/b to the grade’s official selling price, said a company source with direct knowledge of the deal.
“I think light sours overall would trade in premiums this month due to possibly very tight Russian September program and slowing [light sweet crude] arbitrage flows from the North Sea and the US,” the source said.