Premiums for April-loading Far East Russian ESPO Blend crude oil touched a near six-month low on Thursday as tepid demand and a weak market structure pressured premiums lower, trade sources said.
The M1 April loading ESPO premiums were assessed at $2.30/b to Platts front-month Dubai crude assessments as of 4:30 pm Singapore time (0830 GMT) Thursday, according to S&P Global Platts data. The last time the premium was lower was on August 20 where it stood at $2.2/b to Dubai.
Softer demand from China, the most favored destination for the Russian barrels, was cited as a strong reason for the premiums to weaken this month, traders said.
"China demand is not so strong this month, definitely reflecting on ESPO premiums," a China-based crude trading source said.
Rising stocks in China as a result of three consecutive months of robust crude imports saw demand for April loading cargoes soften, noted traders.
Crude oil stocks in the Shandong province had been growing since November, with volumes hitting 129.47 million barrels in mid-February, up 15.5% from the end of November, satellite data from Ursa showed.
While early April loading cargoes traded at a range of $2.5-2.7/b to Dubai, sources noted that this was because of specific requirements by some buyers for those particular loading dates.
Eventually April loading ESPO premiums came down below $2.5/b to Dubai, with Russia's Surgut selling six cargoes, each 100,000 mt in size to trading houses and oil majors at a premium of around $2.2-2.4/b to Dubai, via a tender.
A narrow EFS also contributed to the price slide, traders said. A narrower EFS spread implies that Dubai-linked crude grades are priced relatively higher compared to Brent-linked crude grades, making them less competitive as such, traders added.
The front-month Brent/Dubai Exchange of Futures for Swaps, a key indicator of ICE Brent's premium to Dubai swaps averaged 51 cents/b in February, falling from a January average of $1.04/b, Platts data showed.
"EFS has remained narrow whole of February, not supportive for ESPO prices, " a Singapore-based crude trader said.
Traders expect further downside pressure for ESPO premiums for the coming months.
"There are still some unsold barrels in the market. Premiums should fall further close to $2/b[to Dubai], " the crude trader noted.
