Spot crude premiums jump as US sanctions on Russian producers drive China, India demand

By Siyi Liu and Florence Tan

SINGAPORE, Oct 23 (Reuters) - Spot premiums in crude markets jumped on Thursday on expectations that U.S. sanctions on top Russian producers will spur China and India's demand for supplies from the Middle East, Africa and South America, trade sources and analysts said.

Washington hit major suppliers Rosneft ROSN.MM and Lukoil LKOH.MM with sanctions over the Ukraine war, sparking concerns over tighter supply of oil from Russia, the top supplier to China and India. Global oil benchmark Brent futures LCOc1 rose by more than 4% on Thursday. O/R

Indian refiners and some Chinese companies, buyers in the world's top importers, are set to curtail Russian oil imports to comply with the new sanctions, sources said, turning to other countries for alternative supply.

That sparked a jump in spot premiums for key Middle Eastern benchmarks on Thursday after slumping earlier this month on ample supply as the Organization of the Petroleum Exporting Countries and their allies are increasing output. CRU/M

Cash Dubai's premium settled at a three-week high of $2.71 per barrel, more than double the $1.26 per barrel of the previous session, Reuters data showed. It hit a 22-month low on October 2.

Spot premiums for other benchmark grades GME Oman and IFAD Murban also jumped to one-month highs at $3.12 and $2.86 a barrel, respectively, the data showed.

Privately-owned Reliance Industries RELI.NS will stop importing oil under a long-term deal to buy nearly 500,000 barrels per day of crude from Russian oil major Rosneft, two sources with direct knowledge of the matter said on Thursday.

Indian state refiners including Indian Oil Corp IOC.NS, Bharat Petroleum Corp BPCL.NS and Hindustan Petroleum Corp HPCL.NS are also reviewing their Russian oil trade documents to ensure no supply will be coming directly from Rosneft and Lukoil after the U.S. sanctioned the oil companies, a source with direct knowledge of the matter said.

In recent days, Reliance has purchased spot crude cargoes from Brazil and the Middle East, including Qatari al-Shaheen and Land grades, Iraqi Basra Medium, which could be used to partly replace Russian supplies, traders said. It was seen in the market on Thursday scouting for supplies, said a Middle Eastern trader approached by Reliance.

"We expect most substitute crudes will be sourced from the Middle East. The urgent need for sour barrels should enable the current Basra overhang to clear faster than we previously anticipated," said Richard Jones, a crude analyst at Energy Aspects.

"Today’s rally in Dubai has left Brent-Dubai swap-swap trading deeper in negative territory, supporting Atlantic basin arbs to Asia."

Brent's premium to Dubai quotes DUB-EFS-1M was at 1 cent a barrel on Thursday, having turned negative since the start of this week, LSEG data showed. A narrowing of the price gap makes Brent-linked grades from the Atlantic Basin more attractive for buyers in Asia.

Rosneft and Lukoil were also sanctioned by Britain last week.