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Weak demand in China and weakening structure of the Dubai oil futures market have sent the premium for Russia’s Far East ESPO Blend crude grade to the Middle Eastern Dubai benchmark to one-year-low, according to S&P Global Platts data.
ESPO Blend, as well as the other two Russian grades exported from the Pacific region to Asia—Sokol and Sakhalin Blend—are priced off the Dubai benchmark in Asia, like the Middle Eastern crude grades sold to the world’s fastest growing oil market.
In the middle of last month, the Brent Crude premium to Dubai prices dropped to below $2 a barrel, the narrowest spread since last October, which prompted Asian buyers to book more crude oil supplies from Europe, Africa, the Mediterranean, and Russia’s Urals—all priced off Brent.
On Monday, the premium of the ESPO Blend loadings for September to front-month Dubai dropped to $1.95 a barrel—the lowest premium since August 4, 2017, when ESPO was priced at the same $1.95 a barrel premium.
According to traders and market sources who spoke to Platts, the two key reasons for the narrowing premium of the ESPO Blend to Dubai are the weakening Chinese demand since May this year, and the weakened trading sentiment for the Dubai market amid ample crude cargo supply in the region.
“Since May, we have been seeing Chinese demand slowing down,” a Singapore-based crude oil trader told Platts, adding that the premiums for ESPO have been dropping as a result.
ESPO Blend’s exports from the Pacific port of Kozmino in Russia are set to be 2.4 million tons in September, down by 11 percent from the 2.8 million tons in August, according to a preliminary schedule, with loadings lowered due to expected works on pipelines, industry sources told Reuters last month.
There is still some unsold ESPO volume for September, expected to be sold at premiums of between $1.80 and $2 a barrel to Dubai, a trade source in Singapore told Platts.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.