The Light Sweet/Medium Sour Crude Spread - August 2016

The sweet/sour differentials narrowed further in the US Gulf Coast (USGC) and Europe, while in Asia, they widened significantly amid the narrower Brent/Dubai spread.

In Europe, the Urals medium-sour crude discount to light-sweet North Sea Brent decreased again in July, whereas the Dated Brent-Med Urals spread narrowed to about $1.25/b from $1.70/b in June. The Mediterranean sour crude market remained relatively buoyant compared with the regional sweet crude market, which has been harder hit by the fall in cracks for distillates and clean products in general. Despite additional supplies from the Middle East, Urals crude price differentials strengthened on keen buying interest and a quite tight loading plan, particularly during the first half of the loading month, due to maintenance on a pipeline.

In Asia, the light sweet Tapis premium over medium sour Dubai reversed course this month to increase by around $1 to $4.30/b. The strength in Dubai prompt prices has narrowed its price gap with Brent to the smallest since November. The narrower spread supports demand for Asia-Pacific crude which is mostly priced off Dated Brent. Meanwhile, Middle East sour crudes stayed mostly depressed over the month on ample supply and as weak margins for naphtha and gasoline weighed on lighter grades. The lower Brent premium over Dubai also weighed on Middle East grades amid concerns that it will lead to an increased arbitrage flow of crudes priced on Brent.

In the US Gulf Coast, the Light Louisiana Sweet (LLS) premium over medium sour Mars slipped slightly in July to $5.20/b, down by 10¢. Mars was supported somewhat by USGC pipeline work that will reduce Mars production. Tighter supplies of alternative sour Colombian Vasconia and Iraqi Basra grades also lifted Mars. Falling crude flows through the TransCanada Keystone pipeline system provided some further backing.