Industry Trend Analysis - OPEC Cuts To Pull in Med Crudes - APR 2017

BMI View: OPEC production cuts in medium, sour crudes has created distortions in the Asian crude market, changing global trade patterns, and providing opportunities for both medium and light Mediterranean crudes to flow into the Asian market.

Strong compliance from the participating countries involved in the OPEC production cuts in early 2017 has resulted in a tightening Asian crude market as supplier's reduce their volumes to buyers ( see 'OPEC: High Benchmark Raises Expectations ' , February 14 2017). We previously noted that opportunities are opening up for Brent-linked crudes to Asia, as spreads narrow between light, sweet benchmark Brent and the medium, sour Dubai ( see 'Asian Demand A Relief For Nigeria', January 18 2017). Along with the arbitrage opportunities for Atlantic Basin crudes we also see increasing opportunities for the tightening Asian market to pull in more Mediterranean cargos.

The Mediterranean crude market is brimming with amply supply that has plenty of room to grow over the coming months. The start up for the Kashagan field in Kazakhstan, has led to a surge in Caspian Pipeline Consortium (CPC) exports. CPC is light, sweet blend of Kazakh crudes, which is predominantly comprised of Tengiz but will see as growing share go to Kashagan crude as the giant field ramps up output over the coming years from currently levels of 180,000 barrels per day (b/d) to 370,000 b/d by the end of 2018. CPC crude has been primarily heading to Europe but could find room in the Asian market if differentials continue to be squeezed by a well supplied light, sweet market.

Narrowing Premium Opening Up Arbs
Dubai/Brent Exchange of Future for Swaps (EFS) USD/bbl
Source: Bloomberg, BMI

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