Russian crude trades higher, ESPO premiums above $3.50/b, Sokol over +$4.00

London (Quantum Commodity Intelligence) – The price of light and medium sweet crudes in Asia surged higher again in the week ending June 18, on a combination of the stronger market structure and demand for distillates.

The keenly-watched Russian ESPO grade has traded at premiums of Dubai +$3.50-$3.60/b this week, with Surgutneftegaz selling end-July and early-August cargoes at these levels. As a medium sweet crude (API gravity 36, sulfur 0.5%), the grade has strong distillate properties.

Likewise, India's ONGC sold a mid-August Sokol cargo at $4.10/b. At 37.7 degrees API gravity and around 0.17% sulfur, the grade competes with similar light sweet crude from the North Sea and West Africa.  

Both grades are now trading at the highest levels since early 2020. Distillate-rich grades were riding high in the second-half on 2019, ahead of the implementation of IMO 2020 which mandated lower sulfur levels for bunker fuel.

Distillate

Both grades are already favorites of Chinese refiners, but tax changes in China making imports of light cycle oil more expensive is likely to further boost demand for distillate-rich crude.

Light cycle oil is a gasoil/diesel alternative used in agriculture, mining and the industrial sector.

Distillates cracks, however, have failed to gain further traction during June, but demand is seen improving later in the year.

Meanwhile, the Brent/Dubai EFS (exchange of futures for swap), a key metric in comparing Dubai-related crude oil against grades pricing against the North Sea Brent benchmark, hit a fresh two-year high Thursday as rising Brent outpaces the Middle East benchmark.

The August EFS was assessed by Quantum on Thursday at $3.76/b, compared to around $3.40/b earlier in the week and $2.90/b on the July EFS at the end of May.

The spread reflects North Sea light sweet crude against medium sour crude in Asia, and is also a measure of the west/east spread.