S&P Global Platts: Russia's Sokol crude premiums tumble amid tepid demand, unfavorable economics

Moscow, November 23 - Neftegaz.RU. Spot premiums for January-loading Russian grades are suffering from a steep decline from earlier in the month, with OVL's 2^nd Sokol tender being the latest causality in the fast falling market.

India's ONGC Videsh Ltd, or OVL, was heard to have awarded its second tender of the month offering a 700,000-barrels of Sokol crude loading over Jan. 23-29 to SK Energy at a premium of low $6s/b to Platts Dubai crude assessments, CFR Yeosu, according to market participants, though information on the buyer could not be verified at the time of writing.

In comparison, OVL's earlier tender offering a similar-sized parcel of Sokol crude loading over Jan. 8-14 was heard to have been awarded to a Japanese trading house at a premium of around mid $7s/b to Platts Dubai crude assessments, reflecting a strong retracting in cash premiums for the grade.

Market participants cited several factors resulting in the softening premiums, including a bearish sentiment developing in the global crude markets, which was exacerbated by weaker demand from end-users, narrowing backwardation and Brent/Dubai EFS, as well as increasing viability of arbitrage cargoes.
A crude oil trader based in South East Asia, said:

• The bearish sentiment [comes] mostly from the talks on the drawdown of SPR and COVID-19 situation in Europe

A sharp decline in cash differentials for Russia's ESPO Blend was also seen in this trading cycle, as demand from key buyers in China tapered off, Platts reported earlier.
A crude oil trader based in Singapore, noted:

• I feel buyers are slow this month, they don't want to pay high, demand doesn't support high price
• Monthly spread [backwardation] is much lower than earlier in the month, arrival cost of arbitrage cargoes is also cheaper

The Dubai M1-M3 spread was last assessed at $3.22/b on Nov. 22, and has been on a downward trajectory since Nov. 11, when it was assessed at a multi-year high level of $3.96/b, according to Platts data.
The shrinking backwardation reduces the advantage of procuring short-haul cargoes such as Sokol crude for end-users, pressuring premiums for the grade.

Brent/Dubai Exchange of Futures for Swaps, a key indicator of the relative economic attractiveness for Dubai-linked cargoes such as Sokol crude over Brent-linked alternatives, has also narrowed rapidly over November, further weighing on cash premiums.

Front-month Brent/Dubai EFS averaged $4.49/b in the 3^rd week of November, as compared to $5.26/b in the 1^st week of November, Platts data showed.
The 1^st trader said:

• I think the sentiment has softened, we can see the cracks and also refining margin has been falling

OVL is not expected to issue any further tenders for January-loading Sokol crude, according to a company source.
However, several cargoes of January-loading Sokol crude held by ExxonMobil and Trafigura remain available in the spot market, said the Singapore-based trader.