Tuesday, June 1, 2010

Dubai Oil Gains Means China Buys Angola, Brazil: Energy Markets


By Christian Schmollinger

June 1 (Bloomberg) -- The price of Dubai crude rose above Brent oil for the first time in three months in May, leading China, the world’s second-biggest energy user, to buy from Angola and Brazil.

Dubai climbed to a premium of 28 cents a barrel to the U.K. grade on May 13, the highest since Dec. 15, according to data from PVM Oil Associate
s Ltd. Brent has traded at a premium to Dubai 81 percent of the time this year, peaking at $2.26 April 6. West Texas Intermediate oil futures for July slumped to a $3.71 discount against Dubai on May 14, according to Bloomberg data.

The Middle Eastern grade has risen faster as demand in Asia, led by India and China, climbs while the debt crisis in Europe prompts concerns the region’s fuel use will fall. Asian consumption may grow by 789,000 barrels a day in 2010, versus a contraction of 149,000 for Europe and an increase of 181,000 in North America, the International Energy Agency said on May 12.

“Markets expect the emerging economies to grow,” said Akira Kamiyama, a derivatives trader at Mitsui & Co. in Tokyo. “So relatively, the demand factor for Middle East crude is supported. The West Texas benchmark is a ridiculous value.”

PetroChina Co., the country’s biggest oil company, booked a very-large crude carrier on May 20, the Maersk Nautilus, to load supplies in Brazil on June 21 for arrival in Dalian in northern China, according to shipping reports from Optima Shipbrokers Ltd. and Bloomberg data. Oil price publishing service Platts valued Marlim, the South American country’s biggest oil grade, at a discount of $7.50 a barrel to the July West Texas Intermediate future on May 28.

Asia Recovery

Marlim would cost $67.11 a barrel today, based on the Platts assessment, compared with the yesterday’s $73.28 close for Dubai for July delivery. China’s Brazilian imports have averaged 131,000 barrels a day this year, up 47 percent from 2009, General Customs Administration data released on May 21.

“Brent weakness has been less severe than WTI, and Dubai has by comparison suffered even less, suggesting the recovery trade is alive and well and living in Asia, despite weakness in Atlantic Basin oil markets,” said JPMorgan Chase Co. analysts led by Lawrence Eagles in a May 19 report. “Since the price slump last year it has been Asia that has cleared the market every time it has weakened.”

June Brent traded at $5.57 a barrel above the corresponding WTI contract when the European marker expired on May 14. The new front month July Brent was trading at a 3 cent premium to WTI at 8:20 a.m. in Singapore.

China Boosts Africa

China’s purchases of West African crude have risen for July loading shipments, said two oil traders. Angola was the country’s largest exporter in April sending about 1.1 million barrels a day, Chinese customs’ data showed on May 21.

“Angola is no worse quality than the Dubai crude and certainly Dubai’s higher price will make Angolan crude more attractive,” said Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong. “European markets are pretty much in chaos given what’s happened with the euro. With Europe importing less from Angola then China will be the big buyer.”

The euro has weakened 14 percent against the dollar this year, reaching a four-year low of $1.21 on May 19. The decline has meant crude prices haven’t dropped as much for European buyers.

Since May 3, when European leaders first proposed a bailout plan for Greece and unsettling markets there, oil prices in euro terms have declined by 10 percent. In U.S. dollar terms, crude has dropped by 16 percent.

--Editors: Ang Bee Lin, Clyde Russell.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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