OPEC cuts, weak freight rates help traders profit on Asia crude routes

Wed Feb 22, 2017 4:52am EST
 
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By Henning Gloystein

SINGAPORE (Reuters) - Oil traders from around the world, including the United States, Britain and Brazil, have tripled their sales to Asia as they take advantage of an emerging supply gap following OPEC-led production cuts announced late last year.

Around 30 supertankers have this month made long-haul trips to ship crude oil from the Americas, the North Sea and the Mediterranean to refineries across Asia, the world's biggest and fastest growing consumer, data extracted from Thomson Reuters Oil Research and Forecasts shows.

The unusual movements follow the decision late last year by the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia to cut production by almost 1.8 million barrels per day (bpd) during the first half of this year in a bid to rein in global oversupply and prop up prices.

Companies most involved in the long-haul deals include major oil producers such as BP (BP.L: Quote) and Royal Dutch Shell (RDSa.L: Quote), private commodity traders Trafigura, Vitol and Mercuria, and Chinese refiner Unipec (600028.SS: Quote), trading sources say. Energy and mining giant Glencore (GLEN.L: Quote), Azerbaijan's state-oil firm Socar and Brazil's Petrobras (PETR4.SA: Quote) have also been involved.

Taking advantage of relatively low freight costs and regional crude oil price differentials - known as arbitrage, or arb - traders can profit from supply shortages in one region and oversupply in another.

West Texas Intermediate (WTI) crude futures CLc1, for example, currently trade at around $54.50 per barrel, while international benchmark Brent crude LCOc1 costs $56.90 - a Brent premium over WTI of $2.40 a barrel, compared with near parity in late November, just before OPEC announced its cuts.

"The OPEC cuts have ... led to an open arb for long-haul cargoes, leading to a rise in long-haul crude imports (which) make up for the decline in OPEC (supplies)," said Tushar Bansal, director of Ivy Global Energy, a Singapore-based consultancy.

The cuts are an OPEC policy reversal after two years of pumping out oil and keeping prices low as the cartel sought to squeeze rival exporters.   Continued...

 
FILE PHOTO -  Oil and gas tankers sit anchored off the Fos-Lavera oil hub near Marseille, southeastern France, December 12, 2008. REUTERS/Jean-Paul Pelissier/File Photo