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Sanctions, OPEC cuts push Asia's heavy crude oil prices above Brent

Reuters  |  SINGAPORE 

By Florence Tan

SINGAPORE (Reuters) - benchmarks and DME have nudged above prices for Brent crude, an unusual move as U.S. sanctions on and along with output cuts by tighten supply of medium to heavy oil, traders and analysts said.

Heavier grades, mainly produced in the Middle East, and Latin America, typically have a high sulphur content and are usually cheaper than Brent, the for in the Atlantic Basin.

But spot prices and DME crude futures for April have held above ICE Brent at Asia's market close since the start of February, data from the (ICE), Mercantile Exchange and Refinitiv Eikon showed.

"The forceful implementation of U.S. sanctions on Venezuelan crude exports, the greater-than-expected recent Saudi crude output cut ... and the uncertainty over U.S. sanction exemptions on Iranian crude have all served to strengthen sour crudes relative to sweet benchmarks such as Brent," said Tilak Doshi, a Singapore-based at consultancy Muse,

U.S. sanctions on that suddenly halted its crude exports to the last month created a strong pull for medium and heavy crude from elsewhere, traders and analysts said.

The sanctions, aimed at blocking Venezuelan Nicolas Maduro's access to the nation's revenue, will be extended to non-U.S. from April 28, potentially stopping them from paying for Venezuelan oil in U.S. dollars.

Elsewhere, uncertainty over whether will in May extend waivers to sanctions on Tehran's that it previously granted to top Iranian crude buyers - China, India, and - is also boosting

A decision by the Organization of the Exporting Countries and to rein in has buoyed heavy crude prices as well. Market observers expect producers to cut output of to meet the curbs.

"The U.S. may have to replace more than 500,000 bpd (barrels per day) of Venezuelan crude with other more expensive heavy crude sources from the Middle East, particularly as Canadian and Mexican flows to the U.S. are essentially maxed out," said in a note.


Strong demand from the for to replace Venezuelan supplies has boosted prices for U.S. crude and Latin American grades, restricting supplies of those cargoes to Asia, traders said.

Offers of crude for April delivery to North have risen more than $1 a barrel, while spot premiums for Latin American grades such as from Colombia, have climbed by $2 a barrel, traders said.

was sold out even before its loading programme was released, one of the traders said. The sources declined to be identified as they were not authorised to speak to the media.

U.S. refiners are also seeking more supplies from the Middle East, creating a pull for such barrels at a time when Asia's demand is growing as two new refineries have started trial runs in and

Meanwhile, refiners globally are processing more medium and heavy crude to reap higher profits from and middle distillates. That has kept the price gap between Saudi Arabia's Arab Light and Arab Heavy crude in close to the narrowest in a decade.

"Heavy sour strength is bolstered through the first half of 2019 by continued complex refinery capacity growth and tight markets, before IMO 2020 presents a cliff for (high-sulphur fuel oil) demand," analysts said.

IMO 2020 refers to a mandate by the requiring ships to switch to low-sulphur marine fuel from 2020.

(Reporting by Florence Tan; Editing by and Dale Hudson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, February 11 2019. 18:04 IST