Asian refiners are snapping up Middle Eastern and Russian crudes priced on the comparatively cheaper Dubai marker, shunning Brent-linked Atlantic Basin grades that have become too expensive as the European benchmark strengthens.
Brent's premium to Dubai rose above $5 a barrel this week, the highest since March, and that combined with strong Asian demand has pushed premiums for Russian, United Arab Emirates and Qatari grades to multi-month highs.
Seasonal demand and a recovery in margins, or profits from processing a barrel of crude into products, are also making Asian refiners ramp up runs, amplifying their call for crude.
“Light grades are popular this month, and that in partex plains the strong premiums these grades are fetching,” said a Singapore-based trader with an Asian firm.
Asia's demand for light crudes that yield more naphtha, gasoline and diesel, pushed up Russian Sokol's spot premium in September to a four-month high. Grades from United Arab Emirates and Qatar also traded at premiums for the first time in months.
Abu Dhabi's benchmark Murban last traded at a premium of more than 60 cents a barrel to its official selling price for September, the highest for at least this year, according to Reuters data. That's a sharp rebound from a month earlier when Murban sold for as low as 70 cents a barrel discount to its OSP.
The switch from a discount to a premium also came after Abu Dhabi National Oil Company (ADNOC) cut its OSPs, while a 30percent fall in Russian light sweet crude exports in September has supported prices as well.
Refining margins, or processing profits, have averaged $9.83a barrel over the past five days, the highest since the $10.49level touched in February.
The Brent-Dubai spread widened as the supply of Forties -the North Sea oil that underpins Brent - tightened because of planned maintenance and cargo deferrals.
Over the past three weeks, Brent prices have gained nearly10 percent.
That's likely to keep West African crude exports to Asia low for another month, after volumes fixed for July were the lowest since November as the strong Brent prices discouraged Asia from taking oil from the Atlantic Basin.
“Brent is so strong, at least for us arbitrage barrels are not attractive at all,” said a North Asian refiner.
About 50 West African cargoes will be shipped to Asia in August, similar to in July, according to estimates from two Europe-based traders who track such shipments.
That would put July and August volumes down about 13 percent from 57 cargo arrivals in June and 17 percent from 60 cargoes in May, according to Reuters data.
The August volumes could still rise as a handful of Angolan grades were still available, the two traders in Europe said.
Rising freight rates also made it difficult for these grades to head east, one of the traders said.
Asia's demand for medium to heavy sweet Angolan grades has also weakened after key buyer China turned to cheaper Sudanese crude.