Russia's export of ESPO Blend crude loading from Kozmino port is fixed at 19 cargoes in May, the highest monthly figure since exports of the grade began in December 2009 and up from 17 in April.
The increase is in line with the completion of stage two of the East Siberia-Pacific Ocean pipeline in December 2012, which was commissioned by Russia's national oil pipeline operator Transneft.
Exports of ESPO Blend from Kozmino began late December 2009 with the launch of the first 600,000 b/d phase of the 2,757 kilometer (1,713 mile) ESPO pipeline, which links oil fields near Taishet in East Siberia with Skovorodino in Russia's Far East, near the border with China.
Until late 2012, the crude was transported by rail from Skovorodino to Kozmino at a rate of up to 300,000 b/d.
Export volumes had been ramped up over 2010 to stabilize at around 13 cargoes/month, each of 100,000 mt, over 2011 and the first half of 2012, before rising to 16 cargoes last November after the launch of the extension of the pipeline to Kozmino, eliminating the rail leg.
The project can be expanded in future to carry 45 million mt/year (900,000 b/d) of crude, Russian President Vladimir Putin said at the launch.
Traders said they expect the price of May-loading barrels of ESPO Blend crude to fall on the back of the uptick in supply amid lower margins.
"I don't see how incremental demand can absorb the extra length ESPO without differentials falling," a sour crude trader at a Western trading house said.
Recent falls in gasoil and jet fuel cracks are weighing on the distillate-rich ESPO Blend crude.
May gasoil and jet fuel to Dubai swap cracks fell $4.18/b and $3.85/b, respectively, month on month to be assessed at $16.38/b and $16.12/b Wednesday, Platts data showed. Gains in the 180 CST fuel oil to Dubai swap crack were largely negated by larger falls in distillates, which rose $1.79/b over the same period to be assessed at minus $5.63/b.
Traders said the fall in product cracks meant that refining margins were being squeezed, and added base-load demand from Northeast Asian refiners will continue to wane in the near term and run cuts were likely to occur.
"[Refining] margins are getting worse and China is long on [finished] products right now ... it is likely the same case for Japan," a crude trader at an oil major said.
CHINA, JAPAN LONG ON PRODUCTS
In China, the NDRC said Tuesday it would slash gasoline and diesel retail prices by Yuan 310/mt ($49.91/mt) and Yuan 300/mt, respectively, effective midnight Wednesday. This translates into a Yuan 0.23/liter cut for RON 90 gasoline and Yuan 0.26/liter cut for diesel at the pump.
In Japan, traders said supply for finished products looked long while demand for crude appeared slow.
Japan's largest refiner, JX Nippon Oil & Energy is slated to cut April-loading crude throughput by 8% year on year while hiking April oil products exports by 43% over the same period.
"I think there is less domestic demand [in Japan for products, therefore less demand for crude] ... you can see Japanese refiners exporting more barrels [of products] in March and April. May will not look any much different," a crude trader at a Japanese refiner said.
Despite the bearish sentiment, a bright spot for ESPO remained as the possibility of an arbitrage window opening into the US West Coast seemed increasingly likely, even though it remains shut at present.
Traders compare the delivered Alaskan North Slope crude price -- inclusive of the quality differential to ESPO -- to the FOB price of ESPO crude loading from Kozmino plus freight.
A shipping source said the freight rate from Kozmino to the US West Coast was currently around $1-1.10/b, while the quality spread between ESPO and Alaskan North Slope was quoted by a trader at $1-2/b.
The Dubai-WTI swap spread for May has been on downtrend in March, underscoring the possibility of an arbitrage for ESPO Blend to the US West Coast. The Dubai-WTI swap spread was assessed Wednesday at $8.98/b, down $4.54/b since March 1.
Platts Wednesday assessed ANS delivered to Long Beach at $110.85/b, with ESPO priced at $109.36/b on a FOB Kozmino basis.
"Agreed... the arb is still closed but we are walking that way", a crude trader at a European oil major said.
