Bharat Petroleum Corp Ltd issued a spot tender to purchase several Malaysian light sweet crude grades, raising expectations that more Indian end-users could switch their focus to Southeast Asian supplies amid growing uncertainty over the exports of West African and Mediterranean crude grades.
BPCL is seeking up to 1 million barrels of various Southeast Asian light sweet crudes, including Malaysia's Miri Light, Labuan, Tapis, Kikeh, Kimanis and Bintulu as well as Brunei's Seria Light and Champion crudes for loading over September 11-20, according to an official tender notice seen by S&P Global Platts.
The tender closes July 22, with validity until July 26.
The latest spot tender raised a few eyebrows in the Asia-Pacific sweet crude market, as the Indian state-owned company does not regularly seek Malaysian and Bruneian crude grades in the spot market.
However, BPCL's latest move was seen as necessary, as the procurement of any Nigerian crude grades would be a big risk amid ongoing production hiccups caused by militant attacks in the Niger Delta, a company source said Tuesday. "BPCL, like many other Indian state-run companies, prefer to take Nigerian light sweet crudes like Qua Iboe and Bonny Light. Those are the number one choices," the source said, adding that "when production [of light sweet Nigerian grades is] in doubt, the next best option would be Malaysian [grades]." Late last week, ExxonMobil said Nigerian crude Qua Iboe has been placed under force majeure and exports were halted, while Italian company Eni confirmed earlier this month that 4,000 b/d of oil equivalent of equity production had been shut-in following an attack claimed by Nigerian militants in the Niger Delta.
Nigerian militant group the Niger Delta Avengers said Friday that it would not permit foreign oil companies operating in the Niger Delta region to carry out repairs on bombed oil pipelines, threatening more devastating attacks on any repaired facility.
"There is no guarantee the Nigerian crudes will load and set sail safely. It's very risky," said a Singapore-based sweet crude trader.
Furthermore, various end-users across Asia, especially Indian refiners, have been fretting about potential disruption to the supply of light sweet Mediterranean grades, questioning the near to medium-term stability in Azeri Light exports on the back of fresh geopolitical jitters driven by the failed coup attempt in Turkey late last week.
MALAYSIAN CRUDE PREMIUMS SEEN SUPPORTED
Price differentials for light sweet Malaysian crude grades have recently been recovering from the lows posted in the late second quarter and traders expect the latest uptrend to continue, citing limited flow of arbitrage cargoes from Nigeria and healthy middle distillate product cracks as upside catalysts.
S&P Global Platts assessed Malaysia's benchmark Kikeh crude at a premium of $2.9/b to Platts Dated Brent crude assessments on July 13, the grade's highest differential since May 3 when it was assessed at a premium of $3.15/b.
The light sweet crude was last assessed at Dated Brent plus $2.8/b Monday.
Many regional sweet crude traders pointed out that a number of Indian state-owned refiners have been actively picking up Malaysian cargoes for loading in July and August.
According to the latest shipping fixtures seen by Platts, India Oil Corp. fixed Olympic Sky and Seafalcon to move a total of about 1.2 million barrels of Malaysian Labuan crude for loading in July, while BPCL fixed Nordic Jupiter, Mare Siculum, Shah Deniz and Pavino Spirit to move around 1 million barrels each of light sweet Kikeh and Kimanis crudes for loading in July.
"BPCL currently has some term deals to take Malaysian grades but [the company] is also open to take additional spot cargoes whenever necessary. Our top picks would be grades like Kikeh and Kimanis because they share similar qualities [with Nigerian Qua Iboe and Bonny Light], the company source said.
Meanwhile, healthy middle distillate margins have also been supportive for gasoil and jet/kerosene-rich Malaysian light sweet grades in recent months, traders said.
In Q3 2016 so far, second-month gasoil cracks over Dubai crude swaps have risen 0.81 cents/b from Q2, or 7.7%, to an average of $11.32/b as of Monday. The paper spread between jet fuel/kerosene and Dubai paper was up 59 cents/b, or 5.1%, to a mean of $12.18/b so far. This is the strongest quarter seen so far this year - the gasoil paper margin to Dubai averaged at $9.54/b over the first quarter of 2016, while the jet fuel/kerosene margin averaged at $10.82/b.