Asia Crude-Oman 2012 term premiums up vs 2011

Omani crude oil sellers have sealed some term deals for 2012 at higher premiums than last year on a stronger spot market, forecasts of better demand and higher credit costs, trade sources said on Monday.

Initial deals were done at premiums between 9 and 12 cents a barrel to the Dubai Mercantile Exchange (DME), up from 7-9 cents in 2011, they said.
Buyers preferred to buy Oman directly from term suppliers rather than on the Dubai Mercantile Exchange as the euro zone debt crisis has tightened credit and driven up financing costs, traders said.
"For DME Oman to be lifted, everyone, regardless of their credit ratings, needs to open 2-month LCs (letter of credit) plus all other costs," a trader with a Western firm said.
"The time value of money is high hence LCs are expensive."
A second trader said the higher premium will offset credit costs, hedging and administration fees.
ASIA DEMAND STRONG
Strong demand for Middle Eastern crude in Asia also supported Oman. Its November spot premium OMA-1Mmog-A surged to likely a record of more than $3 a barrel, traders said, while on the DME, it hit a record of more than $6 a barrel above Dubai quotes for November.
The momentum continued for December spot, with physical cargoes trading at $2.50 a barrel above Dubai quotes, traders said.
"Oman premiums are overpriced right now, and that's because DME values are not reflecting fundamentals. Around $1.50 premium for spot Oman would seem to be a fair value," said a Singapore-based trader with a refiner.
World oil consumption is expected to rise by more than 1 million barrels per day (bpd) next year as the global economy continues its gradual recovery, major forecasting agencies said earlier this month.
Oman produces around 860,000 barrels per day (bpd) of crude, with half heading to Asia. China is the largest importer of the medium sour grade in Asia while in Japan and India, the grade crude accounts for 3-4 percent of each country's oil needs.
Shell is the main seller as it holds a 34 percent stake, the largest, in Petroleum Development Oman that produces most of the Oman crude output.
The Oman crude benchmark is also used to price more than 10 million barrels per day of crude produced in the Middle East, Sudan and Russia.
Source: Reuters