LONDON (Reuters, By Ikuko Kurahone) – Heavy crude’s relative value to light will remain pressured in Asia longer than in Europe and the United State because of new Russian exports to the East and a glut of heavy fuel oil there.
The price spreads of light, higher quality crude versus heavy has widened over the past month across all three major regional markets.
“The Asian market is flooded with heavy crude and fuel oil. That is dragging the heavy there, Europe and many other areas,” a trader, who handles physical crude oil in the Mediterranean market, said.
In Europe and the United States, however, the spread may tighten after second quarter refinery maintenance shutdowns.
That should mean higher refinery demand for crude but an increase in lighter products output, such as gasoline and diesel, will also tend to pressure lighter crude premiums.
The key indicators are the Brent/Dubai Exchange for Swaps EFS.L for the Middle East and Asia, differentials on Russian medium-heavy Urals crude to North Sea Brent in Europe and the Mars differentials to U.S. light crude in the United States.
“Urals will potentially strengthen, or the spread narrow, pretty soon. Part of the reason for the wide spread is refinery maintenance — it has fairly well defined timeframe,” said Mike Wittner, Societe Generale’s global head of oil research.
“Regarding Brent/Dubai, it is more about ESPO. It also depends on how Saudi Arabia and other Middle East producers will react.”
Russia started selling ESPO Blend crude from its far east late last year to target Asian customers.