SINGAPORE: Crude cargoes from Africa and Latin America heading to Asia are butting up against Middle East supply, pushing differentials for October-loading barrels from Gulf producers into deep discounts.
With margins persistently low, Asian refiners are also processing less crude, cutting demand as booming U.S. shale oil output is pushing excess oil from the Atlantic Basin and Latin America eastward.
"The arbitrage will remain open for Asia and then Middle East grades will suffer," a Singapore-based trader with a Western firm said.
"You will see (Abu Dhabi) grades trading below OSP minus $1.50," the trader said.
Total SA sold a cargo of Abu Dhabi's Das crude on Wednesday to Glencore Plc at $1 a barrel below its official selling price (OSP) on the Platts window, traders said.
Shell offered Abu Dhabi's Upper Zakum crude at 50 cents a barrel below its OSP, but failed to find a buyer.
Spot Dubai barrels have also fallen below $100 for the first time since July 2013, traders said, while differentials for Qatari al-Shaheen, and Russian ESPO and Sokol grades have hit multi-year lows.
Weak spot demand has also widened the Dubai intermonth spreads at the front of the curve to more than 30 cents a barrel in contango. In a contango market, oil prices are higher for future months than for prompt supplies.
At least one Russian ESPO to load in September was expected to head to storage tanks in South Korea to sit out the low prices, traders said. Some of them doubted, though, that the intermonth spreads were wide enough to cover storage costs.
"They are betting cargoes are cheap now, but prices will improve," an independent analyst who declined to be named said.
"If it's in contango, they might just get away with it. But if the change in structure reflects a long length in crude supplies and poor margins, they may be storing (the oil) for a long time."
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