Singapore — Taiwanese refiners have been relentless in buying US crude oil over the recent few trading cycles, a new arbitrage trade pattern that could potentially push the island state into the ranking of top three buyers of North American oil in Asia for the second half of 2018.
Armed with competitive price tags, US crude oil started to gain popularity in Asia from early 2017, and Taiwan's recent burst into the North American arbitrage trading scene came as little surprise as the WTI benchmark remains at a steep discount against its Middle Eastern and European counterparts Dubai and Brent.
Taiwan's CPC Corp. was heard to have purchased 6 million barrels of US WTI Midland crude for delivery over November, market sources with knowledge of the matter told S&P Global Platts. Sellers of the cargoes, however, could not be confirmed.
The latest deal further extended the state-run energy firm's buying streak of the light sweet US crude in recent months.
Previously, the company had bought 4 million barrels of WTI Midland crude for loading in September, around 5 million barrels of the same grade for loading in August, and around 7-8 million barrels for July lifting.
In addition, Formosa Petrochemical has purchased up to 1 million barrels of Mars Blend crude for September-October delivery at a CFR equivalent price of around front-month Platts Dubai plus 50 cents/b to $1/b, market sources told Platts last month.
Formosa's latest procurement of the medium sour grade marked the end-user's first ever US crude purchase.
MAJOR ASIAN BUYERS
The slew of arbitrage trade deals concluded over the recent few trading cycles suggest that at least 20 million barrels of US crudes may reach Taiwan in H2, topping the latest half-yearly import records of India and South Korea, Asia's second and third biggest customers of North American grades.
Over the first six months of the year, South Korea has imported a total of around 14.1 million barrels of crude and condensate from the US, according to data from state-run Korea National Oil Corp.
According to the latest US census exports data, a total of around 16.02 million barrels of US crude had moved to India during H1.
"[South Korean refiners] have not slowed down their US crude purchases by any means ... it's just that Taiwan's [US crude] imports could seriously outpace them," a trading manager at a South Korean refiner said.
South Korea's imports from the US in H1 was in fact more than four folds higher than the same period last year, while US crude shipments to India in May and June came in at 152,000 b/d and 261,000 b/d, respectively, sharply higher than the 29,000 b/d recorded in the January-April period.
Last month, state-run Indian Oil Corp. had signed its first US term crude oil deal, buying a combined total of 6 million barrels of WTI Midland, Mars Blend and Light Louisiana Sweet for delivery in Q4.
"But CPC Corp. looks set to receive at least three to four million barrels every month [in H2] ... it's more than possible to see Taiwan's imports surpass [that of India]," a sweet crude trader at a European trading firm said.
ARBITRAGE ECONOMICS
Taiwanese refiners have typically relied on Middle Eastern crudes linked to Dubai prices, and Angolan light sweet Cabinda and Nemba grades priced against Brent.
However, North American price benchmark WTI's prolonged discount against Dubai and Brent could have offered strong impetus for the companies to rapidly shift focus to US supplies.
The April-June period saw the spread between WTI and Dubai crude price benchmarks widen to a steep discount, making various North American export grades loaded during the quarter extremely competitive.
Platts data showed the spread between the front-month WTI swap and same-month Dubai crude swap had averaged at minus $3.91/b in Q2, the biggest discount since the minus $5.13/b average in Q3 2014.
The North American benchmark's discount against the Middle Eastern marker has widened in recent months, with the spread averaging minus $4.42/b so far in Q3, the data showed.
Furthermore, outright price spreads between WTI Midland crude for loading in the US Gulf Coast, and light sweet West African grades have trended lower so far this year, making a case for Taiwanese refiners to favor the US crude over Angolan grades.
Sources:S&P Global Platts
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