Malaysia spot crude premiums hit multi-year high on tight supplies

Asia-Pacific refineries are forking out multi-year high premiums for sweet crude produced in the region as alternative supplies from the West have become more expensive with the rise in shipping costs, several trade sources said on Monday.

Lower exports from Indonesia and Vietnam and rising demand for very low-sulphur fuel oil (VLSFO) have also helped push up premiums for crude produced in Malaysia such as Labuan and Kimanis to the highest in years, they said.

Malaysian crude has low sulphur content that makes them suitable to be processed into cleaner fuels.

Malaysia's state energy company Petronas [PETR.UL] has sold 300,000 barrels of Labuan crude to Royal Dutch Shell at a premium of about $9.50 a barrel to dated Brent, they said.

That is the highest premium since June 2011, one of the sources who tracks Asian oil trades closely said.

Separately, ConocoPhillips has sold a 600,000-barrel Kimanis cargo loading on Feb. 17-21 to an Australian end user at a premium of above $9 a barrel to dated Brent, the sources said.

Thai refiner IRPC has also opted for a 650,000-barrel cargo of Australia's Ichthys crude in its latest tender to arrive between Feb. 20 and March 5, they said.

Demand for low-sulphur crude is strong in Asia as refiners ramp up output of VLSFO, or fuel oil with 0.5% sulphur, to meet shippers' need for cleaner fuels before new emission rules by the International Maritime Organization kick in from Jan. 1.

The companies typically do not comment on commercial matters.

Arbitrage flows from Europe, Africa and the United States to Asia are being curbed by high freight rates due to seasonal demand and refuelling delays ahead of the new maritime emission rules.

For example, the volume of crude to discharge in Australia from Europe, Africa and the Americas is expected to slump to less than 1 million barrels in January, the lowest since April 2017, Refinitiv data showed. This is down from an all-time high of 7.7 million barrels in December.

Similarly, Thailand's imports from the three regions may fall to about 2 million barrels in February, from record highs of close to 8 million barrels each in the previous two months, the Refinitiv data showed.

Singapore's imports from the three regions is expected at about 5 million barrels in February, down from an all-time high of 21.7 million barrels in the previous month, the data shows.

(Reporting by Florence Tan; Editing by Himani Sarkar)

By Florence Tan

Stocks treated in this article : London Brent Oil, Royal Dutch Shell, ConocoPhillips, WTI, VietNam Holding Limited