The biggest oil producers in the Middle East are helping crude from Western Siberia boldly go where it’s rarely gone before.

Top South Korean refiner SK Innovation Co. is set to receive about 1 million barrels of Urals crude in its first purchase of the Russian blend oil in a decade. The shipment was made viable because of rising costs for rival supply from the Middle East, as nations such as Saudi Arabia curb output to comply with a deal between global producers.

The cargo is also another example that helps illustrate how the reductions by top OPEC members are rerouting the flow of oil across the globe. In recent weeks, Asia has become a destination for grades that typically don’t show up in the region -- from U.S. Mars Blend and Southern Green Canyon to West Canadian Select, Hibernia and White Rose. The premium of Oman crude, often pitted against Urals because they are of similar quality, jumped to its highest level this month against Middle East benchmark Dubai oil.

“The flow of Urals into Asia is rare as it’s usually not economically viable versus other supplies such as Oman or Upper Zakum crude,” said Nevyn Nah, a Singapore-based analyst at Energy Aspects Ltd. “The grade is typically transported on Suezmax or smaller vessels due to draft restrictions at the port and Suez Canal, and that makes it tough to compete with Mideast grades that are typically transported on Very Large Crude Carriers.”

Urals, a medium-sour grade favored by processors in the European and Mediterranean regions, has been less popular among Asian buyers as Middle East crudes were cheaper, required less sailing time due to geographical proximity and were delivered in larger vessels. A VLCC can transport about 2 million barrels, while a Suezmax would hold about 1 million.

SK bought about 1 million barrels of Urals for April arrival from Lukoil PJSC, three traders with knowledge of the deal said. Company spokeswoman Kim Wookyung confirmed the purchase.

“As Dubai crude supply has become tighter in Asia, this made Russian cargoes more economical for us,” Kim said, adding that the cargo “will be our first purchase of Urals in a decade.” The North Asian nation last imported the Russian crude in 2007, according to 1998-2015 data provided by Statistics Korea. Figures for 2016 are currently unavailable.

The premium of Brent, the benchmark for more than half the world’s oil including Urals, against Dubai crude was at $1.50 a barrel on Thursday, after shrinking to the smallest since September 2015 last month. American marker WTI fell below Dubai in December for the first time since at least May. That’s as Middle East nations shouldered a majority of the cuts as part of the global deal aimed at easing a market glut.

OPEC and 11 other nations’ agreement to trim output took effect on Jan. 1, with an aim to reduce output by about 1.8 million barrels a day during the first six months of 2017. The group has achieved a record 90 percent initial compliance with the accord, according to the Paris-based International Energy Agency.

Brent futures were up 12 cents at $55.77 a barrel on the ICE Futures Europe exchange at 3:51 p.m. Singapore time, while WTI rose 6 cents to $53.42 a barrel on the New York Mercantile Exchange.

Source:
courtesy of BLOOMBERG

by Sharon Cho and Serene Cheong

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