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Asia May Return To Mid-East Crude As Mexican Supply Tightens

Barrels

Asian refiners may see their efforts to diversify medium sour crude purchases away from the Middle East hampered by possible lower availability of a Mexican grade that has been popular lately, and buyers could return to buying more medium sour crude from OPEC’s Saudi Arabia, the UAE, or Qatar, sources at Northeast Asian refiners have told Platts.

According to sources at Asian customers who spoke to Platts, the Isthmus medium sour grade sales from Mexico to Asia could drop off sharply in 2018, due to a recovery in Mexico’s domestic demand after the earthquakes that hit the country earlier this year.

Asian buyers are getting ready to have Isthmus supplies at below 100,000 bpd in 2018 in the worst-case scenario, compared to 150,000-200,000 bpd of Isthmus sales in Asia so far this year.

Last week, sources told Reuters that Mexico’s national oil firm Pemex had declared force majeure on Isthmus crude loadings for cargoes in early December. According to one of the sources, force majeures on Mexican crude loadings is not unusual for this time of year, due to bad weather.

But Asian buyers are nevertheless bracing for much lower Isthmus supply next year.

“The recent force majeure declared on early December-loading cargoes can be taken as a precursor to much tighter supply [in 2018],” a South Korean refiner source told Platts.

Related: Tesla Completes World’s Largest Battery

Should Isthmus availability more than halve next year, this would hurt Asian buyers’ plans to diversify sources of supply, and may prompt them to buy more of the medium sour grades from the Middle East—with Saudi Arabia’s Arab Light, Abu Dhabi’s Upper Zakum, or Qatar’s Al-Shaheen, seen as the easiest substitutes.

Other alternatives could be U.S. crudes such as Mars or Southern Green Canyon.

“Price-wise, US medium grades are higher than Middle Eastern crude currently ... so it is difficult to fix [term],” a Northeast Asian crude trader told Platts.

Another option for replacing the Mexican Isthmus could be Russia’s Urals Blend. However, with Urals priced against Brent, and Brent’s premium to Dubai rising to $3.37 a barrel last week—the highest since July 4, 2016—Asian refiners could find medium sour grades from the Middle East more competitively priced, Platts says.

By Tsvetana Paraskova for Oilprice.com

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