Crude
Market Overview
Market Overview
US and European refineries can optimize yields; Asian refineries cannot — the only lever is cutting throughput to minimum hydraulic flows.
Asian refiners will grab whatever barrels are available outside the AG. Regional grades not exposed to SoH and under Afra econs will command record premiums.
Indian refineries have the luxury of taking Russian barrels, others are more hesitant due to payment risks. However Philippines have secured a cargo of ESPO and perhaps more to come.
India also fighting with Chinese teapots to secure Iranian barrels.
Competition to pull WTI, WAF, Guyana, Canada and Brazil barrels will be fierce. Asian refiners now value crude on baseload economics — not marginal economics. Use Sparta’s complex margin to represent this new reality.
In the volatile trading month of March, WTI, Bonny Light and CPC show clearly positive margins vs Murban. WTI generated a higher margin than Brent-linked crudes.
Mars and Tupi offer compelling economics vs Oman. Johan Sverdrup arb was wide open vs Oman, though less compelling than other grades.
These grades cannot fully substitute the medium sour diet Asian refineries are designed for — yield mismatches and quality issues (nitrogen, metals) constrain direct replacement.
April trading will see European refineries also competing for the same grades, so the competition will be stronger.
Mars is a more direct replacement for Arab Medium but this is not the excess crude length in the USGC.
WTI Midland is the crude that USGC has plenty to export, but yield-wise, it is a better replacement for Murban crude. However, we will get more naphtha from WTI at the expense of middle distillates.
If we can magically replace Arab Medium with WTI (which is not a 1-to-1 replacement anyway due to hydraulics constraints), then the problem worsens as the high fuel oil yields for medium sour crudes will typically be converted into more gasoil via secondary units.
This translates to very big issues with diesel and fuel oil supply on two fronts: reduced runrates and from running a lighter diet.
