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OPEC Reference Basket

Source: OPEC 7/8/2013, Location: Europe

The OPEC Reference Basket (ORB) slipped only marginally in May to average $100.65/b. Hopes for stronger global economic recovery were undermined by weak manufacturing data from China and lacklustre first quarter growth figures across the Euro-zone. Although some support came from the US economy, intermittent fears about an early scale-back in the US Federal Reserve’s stimulus programme raised doubts over demand prospects. Fundamentally, a bearish tone for the month was set by lower-than-expected demand data, even as several refiners came back on line after wrapping up spring maintenance.

Crude inter-grade differentials also told a very mixed story, with an exceptionally poor market for naphtha and weak demand for gasoline in the Atlantic Basin pressuring lighter crudes, even as medium-sour grades in the Mediterranean enjoyed a brief premium against Dated Brent.

Also on the fundamental side, global inventories continue to creep higher, particularly gasoline in the US market, signifying weak demand fundamentals despite the start of the driving season. This took place amid rising crude oil supply in Europe and the US. On a monthly basis, the Basket dropped to an average of $100.65/b in May, slipping marginally by 40¢ or 0.40% compared to the previous month. Year-to-date, the Basket averaged $105.85/b, a decline of $9.75 or 8.4% from a year ago.

In May, the performance of individual Basket components was mixed. While Middle Eastern spot-related crudes saw their value fall the most, the value of Latin American grades improved, supported by the speedy recovery of the WTI/WTS and WTI/Brent spreads.

Ecuador’s Oriente and Venezuelan Merey increased about 50¢ at a monthly average of $95.21/b. Despite the falls in refinery maintenance, the Dubai spot market was weak during the month, causing its backwardation to slip from the previous month’s level. Meanwhile, Adnoc’s Murban and Lower Zakum both were below their respective OSP’s. These grades, along with some other lighter Middle Eastern sours, have been especially impacted by recent poor middle distillate margins and thin demand from north Asian refiners. On average, Qatar Marine and Murban crudes decreased by $1.50 over the month of May, while multi-destinations grades, such as Iran Heavy, Basrah Light, Kuwait Export and Arab Light, all weakened by an average of around 30¢. Despite plentiful competing supplies and weak refining margins in Europe, on average Brent-related crude values improved marginally, as Bonny Light and Es Sider prices appreciated, while those of Saharan Blend and Girassol dropped.

Firmer demand for light sweet crudes in the US and strengthening refining margins opened the transatlantic arbitrage for North Sea crude. Some grades were also supported by tight supply and increasing buying interest from Indian refiners. On average, the prices of Brent-related components from North and West Africa edged up by around 20¢.

On 10 June, the OPEC Reference Basket stood at $101.38/b.

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