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US traders seek oil product cargoes from N.Asia refiners after Harvey

[SINGAPORE] US traders are seeking to import oil product cargoes from North Asia to the United States after Hurricane Harvey forced refineries across the US Gulf Coast to shut down, refining and shipping industry sources told Reuters on Monday.

At least two North Asian refineries have received enquiries from refineries and traders in the United States looking for prompt jet fuel and diesel cargoes, two people familiar with the matter said, declining to be named as they were not authorised to speak to media.

Complex refining margins in Singapore are already at their highest in August in five years as peak summer demand and refinery outages lift oil products prices, and could get a further boost from Harvey. The storm came ashore over the weekend as the most powerful hurricane to hit Texas in more than 50 years, killing at least two people, causing large-scale flooding, and forcing the closure of Houston port as well as several refineries.

Refiners and US-based traders are looking for prompt-loading diesel and jet fuel cargoes from North Asia, but there are limited cargoes available, the two refining sources said. "The market in Asia is very tight, so we had to turn them away as our cargoes have been committed," one of the refining sources said.

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This might mean that US traders have to seek oil product cargoes from traders in Asia instead, likely paying higher prices, which could drive up spot prices in Asia, the second refining source said.

Asia is the most likely supplier of diesel and jet fuel cargoes to the United States despite a longer voyage than from Europe, as Europe is typically short of middle distillates. A recent spate of refinery incidents in Europe has also drawn down inventory of the fuels there.

Some 275,000 tonnes of oil products comprising mainly jet fuel had been provisionally fixed on vessels from Japan and South Korea to head mainly to the west coast of United States prior to the storm, a Singapore-based shipbroker said, with more enquiries being made.

The arbitrage to ship diesel and jet fuel from Asia to the US remains unprofitable as of Monday morning, but things could change soon as prices in the US are expected to climb further, said a Singapore-based analyst with a trading firm, who declined to be named as he was not authorised to speak with media.

For gasoline and naphtha, traders expect the United States and Latin America to draw on Europe's ample supplies instead of Asia. US liquefied petroleum gas (LPG) shipments to Asia have been disrupted by the closure of the Houston shipping channel, an LPG trader said.

The discount of U.S. West Texas Intermediate (WTI) crude futures to Brent crude stretched to its widest since September 2015 on Monday, keeping arbitrage windows to send US crude to Europe and Asia open, but stronger spot premiums for US grades and infrastructure constraints could curb exports.

The storm has also shut-in some oil production as well as closed pipelines and terminals, making it challenging to move crude, traders and analysts said. "Exporting in these conditions won't be easy given that Midstream companies are also scaling back operations. Importing crude will also be impacted," Virendra Chauhan, an oil analyst at consultancy Energy Aspects said.

Ships scheduled to load US crude in August are already on their way to the east, but the next loadings for Asia scheduled on Sept 5 may face delays, according to trade sources and shipping data on Thomson Reuters Eikon.

Looking ahead, the floods could cut fuel demand in the United States briefly, with a bigger impact for gasoline estimated at up to 100,000 barrels per day, Mr Chauhan said. "In previous hurricane seasons (Ike and Katrina), diesel demand was down 20,000-35,000 bpd month-on-month, but then it recovers strongly two months later due to reconstruction activity," he said.

REUTERS