Rising cost of Brent crude creates opening for Gulf oil

Wide spreads between Brent and cheaper crudes support higher Gulf oil sales.

The rise of Brent crude above US$100 a barrel could help Gulf producers sell more oil. Yesterday, Brent exceeded $102 while West Texas Intermediate (WTI) crude fell below $86.

The near record price spread of more than $15 per barrel between the two leading crude oil benchmarks is reflected in unusually wide spreads between Brent and other crude grades, opening up selling opportunities for Gulf producers.

That is because the price of Dubai crude, the regional benchmark, is not pegged to Brent, unlike the crudes pumped by west African states.

The African producers are the Gulf's main competitors in supplying crude to the Asia-Pacific region, where oil demand is growing fastest.

Opec has questioned the usefulness of benchmark crudes in their influential role in setting global oil price levels.

"Recent price trends in the WTI and Brent benchmarks are more a reflection of the specific circumstances of their underlying crudes, rather than an indicator of any tightness in the physical market as a whole," the exporters' group said yesterday.

"This raises questions about their ongoing effectiveness as barometers for the international crude market."

The International Energy Agency (IEA) said yesterday in its latest monthly oil market report: "Brent's lofty premium to Dubai crude has made Middle East crudes linked to Dubai more attractive" in the Asia-Pacific area.

Brent's premium over Dubai crude, which is normally cheaper than the European benchmark because it is stickier and more sulphurous, has widened to about $4 per barrel, its highest in more than two years.

Last year, the spread between the two averaged $1.55, according to Bloomberg data. Asian refiners and traders expect it to widen to $5 a barrel this month, the agency reported.

Chinese refiners prefer lighter, less sulphurous west African crudes, which are cheaper to refine into products such as diesel, and are willing to pay "top dollar" for them, the IEA noted.

Nevertheless, more Gulf and Latin American crudes, which also tend to be heavy and sour, have been heading to Asia, said John Vautrain, a senior vice president of the oil consultant Purvin and Gertz in Singapore.

A number of Latin American crudes have the added market advantage of being pegged to the relatively cheap WTI.

"Chinese demand has acted like a magnet and exporting countries have tried to make the most of the strong pull eastwards," the Vienna consultancy JBC Energy said in a note.

The IEA, which advises industrialised countries on energy issues, said crude prices were recently propelled by political unrest in Egypt.