Qatar Marine crude is trading at the highest level in four weeks versus its official selling price as Japanese refiners replenish supplies of kerosene for heating and Saudi Arabia cuts shipments of similar grades.
Qatar Marine for loading in October was at a premium of 3 cents a barrel relative to the benchmark producer prices, compared with a discount of 8 cents on Aug.18, according to data compiled by Bloomberg. The kerosene-rich blend has traded at an average of 9 cents below its official selling price during the past year.
Japanese refiners are seeking the medium-grade oil to bolster supplies before winter heating demand peaks. The country’s stockpiles of kerosene were at 2.179 million kiloliters, or about 13.7 million barrels, in the week through Aug. 28, the lowest on record for the time of year, according to data from the nation’s Petroleum Association.
“Refiners are buying October cargoes now because they are concerned about the low inventory for kerosene,” said Akira Kamiyama, a derivatives trader with Mitsui & Co. in Tokyo. “The Middle East crude is a good value.”
Qatar, the smallest oil producer after Ecuador among the 12 members of the Organization of Petroleum Exporting Countries, was the fourth-largest supplier of crude to Japan in July, according to data from the Ministry of Economy, Trade and Industry. Japan bought 2.1 million kiloliters from the Middle East nation in July, about 12 percent of its imports.
Qatar Marine’s kerosene yield is about 14 percent by volume after basic processing, according to data from Energy Intelligence Group. Arab Light, the Middle Eastern nation’s biggest export grade, produces about 9.6 percent.
Japanese refiners are buying Qatar Marine now to ensure supplies reach the nation before the coldest months. The profit from cracking, or reprocessing, the blend was 48 cents a barrel today, according to data compiled by EnSys Energy and Bloomberg. The average over the past six months is $1.65.
Crude purchased for October loading would take about 23 days to reach Japan from the Middle East aboard a Very Large Crude Carrier, arriving by the end of the month or early November, according to Bloomberg data.
Japanese demand for kerosene has fallen as consumers switch to electric heaters powered by generators that run on imported natural gas. Sales of the heating fuel dropped 35 percent as of the end of last year, from a record 5.08 million kiloliters in December 2005, according to the Ministry of Economy, Technology and Industry. Liquefied natural-gas sales climbed 57 percent to 6.6 million metric tons in the same period.
“In Japan the oil-product consumption isn’t increasing,” Mitsui’s Kamiyama said. “The only real bullish factor is the historical low in the kerosene stockpiles.”
Refiners are turning to the spot market for Al-Shaheen and Qatar Marine, so-called medium-grade oils under the American Petroleum Institute’s classification system, as Saudi Arabia ships more light crude at the expense of heavier grades.
Saudi Arabian Oil Co. is reducing volumes of Heavy and Medium crude while boosting the amount of Arab Light crude sold to processors under long-term contracts for September, according to three traders who participate in the market and declined to be identified. Arab Light for September sells at a discount of 65 cents a barrel to the average of Oman and Dubai, compared with $3.40 for the heavy grade, the company said Aug. 4.
Qatar’s Al-Shaheen grade for October delivery traded at a discount of $1.10 to Dubai benchmark crude, compared with $1.30 for September, said the three traders.
“Spot market demand for the medium-heavy complex was additionally buoyed by lower volumes of Saudi crude in the market,” JBC Energy GmbH said in an Aug. 23 report.
West Texas Intermediate crude for October delivery, the benchmark light futures contract, traded at $73.70 a barrel, down 21 cents on the New York Mercantile Exchange at 3:41 p.m. in London. It has declined 6.8 percent this year.