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.