Abu Dhabi term talks shadow crude oil market
Abu Dhabi term talks shadow crude oil market
SINGAPORE (Reuters): The Asian crude market will be focused on developments in the Abu Dhabi term negotiations between equity holders and their Asian buyers this week, since the spot market is stuck in the inactive period between December and January, traders said yesterday.
They said that heavy Asian crudes such as Indonesian Minas will be supported after the last December deals were done at ICP +55 cents per barrel.
But the lack of availabilities for December will keep trading lackluster, they said.
On the Abu Dhabi term negotiations, equity holders BP, Total and Shell are offering a 14 cents per barrel premium to the government price set by Abu Dhabi National oil Co. (ADNOC) for Murban contracts next year, down from 19 cents initially shown, traders said.
They said that term buyers of Murban, the main Abu Dhabi grade, have been holding out for ADNOC +10.
But it was expected that most of the contracts could be settled around the ADNOC +14 cents level.
In 1997, the equity holders set their Murban term prices between ADNOC +24 to ADNOC +29.
Unlike Shell's Oman term contract, where a single price applies to all term customers, the Abu Dhabi term prices vary with each customer.
The equity holders have been holding talks for over a week, but only BP has signed a Murban contract with one buyer at ADNOC +15 cents, traders said.
Traders said the protracted negotiations was due to differing outlooks on the crude market between the buyers and sellers. "Sellers are quoting last year's premiums, but buyers are saying that the market is very different now," said a trader with a major oil company.
"The market has changed a lot," he added.
Traders said that light Abu Dhabi crudes, which have traditionally been a a staple diet for Asian refiners, are now facing more competition from long-haul crudes from the west, which has led buyers to push for term prices that are competitive.
Refiners in South Korea have been buying West African cargoes on a regular basis, while Chinese refiners are looking to buy more cargoes from Canada and South America, in addition to West African grades.
Japanese refiners, who are normally more conservative, are also becoming increasingly inclined towards the West African crudes, which are more economic.
Shell's Oman term contracts for 1998 illustrates Asian refiners' need for more competitive prices from their traditional crude suppliers. Shell set its Oman term price at MPM +7, a record low since Shell started its term contracts in 1990.
But the company lost around 40 percent from its 1997 term volumes of 250,000 barrels-per-day, as buyers said that the price was not competitive enough to lock in term volumes.