OPEC's cuts driving strength throughout Asia-origin crude complex

Singapore (Platts)--26Dec2006

OPEC's decision to cut production levels again from February next year
has started to have a direct and heavy impact on the physical crude oil
markets across Asia, forcing refiners to come to market and taking the heat
off discounts for poorer-quality crudes, traders said.

"There is a general fear (by end users) that there will be less oil
around. It's better to pay up now," one Asian crude oil industry source said.

The discounts offered for regional medium-sweet and light-sweet crudes
have narrowed significantly throughout the fourth quarter, Platts data showed.

In December so far, the premium enjoyed by Malaysia's light, sweet crude
oil Tapis Blend over Indonesia's medium, sweet Minas crude has narrowed to
$3.50/barrel, down from a premium of $4.79 in November and $7.67 in October.

The key catalyst that significantly narrowed the December Tapis/Minas
differential was the announcement of a second round of OPEC cuts starting in
February for Asian term lifters and short-covering by end users, industry
sources said.

Medium sweet fundamentals are particularly being shored up by the
stockpiling of crude oils suitable for burning by power stations in northeast
Asia, with availabilities expected to be tight in the first quarter of 2007,
industry sources said.

VERY LIGHT CRUDE OIL NOT BENEFITTING AS MUCH

Light crude demand, meanwhile, didn't benefit as much from the tighter
physical market, largely because of weakening light and middle distillates
crack values, traders said.

"Recently, only naphtha has improved (relative to crude). Kerosene is
almost same. Gasoil is down sharply. Fuel oil is still (a) headache for (a)
refinery," a trader said.

Generally strong demand for those crudes has also translated into strong
premium levels for February-lifting crudes being made available for spot
purchasing. Vietnam's state-owned Petechim has sold Bach Ho, Ruby and Su Tu
Den crudes at a premium of $2.50/barrel, $2.70-$2.90/barrel and
$3.10-$3.40/barrel over its official selling price respectively, industry
sources said.

For Minas crude, a common feedstock for thermal power generation in
Japan, premiums rose from 65 cents/barrel to around $2.50/barrel above
Indonesian Crude Price for Minas crude.

Heavy-sweet Indonesian Duri and medium-sweet Nile Blend crude from Sudan
have also rallied, thanks to the ability to use both crudes as a
direct-burning feedstock.

Duri crude discounts have flipped to strong premiums of $2.50/barrel over
the Indonesian Contract Price set for Duri, while the discounts available for
Sudan's Nile Blend against the ICP for Minas have strengthened significantly
from about minus $6.00/barrel levels to minus $1.10/barrel.

--Emril Jamil (emril_jamil@platts.com)

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