Non-Russian oil product premiums in Europe at least 7-times than in Asia
Quantum Commodity Intelligence - The premium energy companies need to pay to guarantee transport fuels in Europe do not come from Russia was at least $20/mt on Wednesday, almost seven times higher than such a guarantee fetches in Asia.
According to brokers, energy major BP was seen bidding at a $47/mt premium over swaps for a cargo of jet fuel into Isle of Grain for delivery May 27 through June 5, a figure equivalent to $1,329/mt CIF, according to Quantum calculations.
At the same time, trading house Glencore was offering a similar-sized cargo for delivery into Le Havre at a $40/mt premium, but for earlier dates of 21-25 May.
Taking into account a steeply backwardated market of $1.37/mt per day – where the value of cargoes in the future decline compared to more prompt cargoes – BP's bid could be seen valued at $28/mt over the Glencore offer.
Once port differentials are taken into account, sources say that the premium of guaranteeing non-Russian jet fuel is at least $20/mt.
While on a cargo of 27,000 mt, that means an extra $500,000, it is just 1.5% of the total price – far lower than the expected cost of an embargo.
Gasoline values show a smaller discount.
Barges of premium unleaded were being bid at $9/mt over where offers for identical specifications and delivery dates were seen – less than 1% of the cargo value.
However, market sources say the real premium could be at least double that level and as high as $60/mt for diesel.
"No-one knows where the differential is between Russian and standard oil, because no-one wants to touch it," one source told Quantum.
The difference in price is problematic for some trading houses as term contracts are related to the industry benchmark set by S&P Global Platts, which remains that of open origin.
For many energy companies, whose policies are to avoid Russian molecules, it means their purchases and sales are disconnected from the real price they are forced to pay, causing hedging difficulties.
Asia
While the difference is evident in Europe, in Asia there was little price differential for guarantees of non-Russian distillate seen.
In Asia, BP was offering non-Russian diesel cargoes at a premium of $7.40/b over swaps for loading 4-8 June, a value equivalent to $153.53/b ($1,143.80/mt), according to Quantum analysis.
At the same time, Vitol was bidding for open origin cargoes for the same port and near-identical dates at a level $0.40/b, or $3/mt, lower.
Comparatively low levels of traceability of non-Russian oil loading at port, as opposed to delivery into ports, as well as readily availably non-Russian supply, were seen as the reason for the sharp divergence between premiums. That is despite similar counterparties being involved in trading.