Exports of Upper Zakum crude from the United Arab Emirates fell sharply in March after ADNOC diverted more supply to its own refinery and boosted shipments of its lighter Murban oil, according to traders, analysts and shipping data.
The swap in oil grades at Abu Dhabi National Oil Company's (ADNOC's) Ruwais refinery has tightened medium-sour crude supply in Asia, limiting the number of Upper Zakum cargoes that can be delivered during S&P Global's price assessment process for Middle East crude Dubai and supporting the benchmark.
"They invested a lot of money over at least 3-4 years upgrading Ruwais to run heavier grades so it makes a lot of sense to run Upper Zakum and sell Murban," said Adi Imsirovic, director of Surrey Clean Energy.
"Barrel-for-barrel, Murban brings more revenue for equal compliance," he added, referring to production quotas that the United Arab Emirates has agreed to as a member the Organization of the Petroleum Exporting Countries (OPEC).
ADNOC declined to comment.
In 2018, ADNOC invested $3.5 billion to upgrade its 837,000-barrel-per-day (bpd) refinery to process up to 420,000 bpd of heavier and more sour crude including Upper Zakum, according to the company's website.
ADNOC started shipping Upper Zakum crude to its refinery in September, with volumes reaching 200,000 to 300,000 bpd in February and March, according to traders.
Kpler data showed the share of Upper Zakum crude to Ruwais hit 366,000 bpd in March, or 40% of overall shipments, up from 152,000 bpd in February. Rystad forecasts Upper Zakum exports at about 650,000 bpd in March, down from a monthly average of 940,000 bpd in 2023.
Middle East medium-sour crude exports have fallen as new refineries in Kuwait, Oman, the UAE and Saudi Arabia demand local crudes, said Janiv Shah, Rystad's vice president of oil markets.
"The largest importer of Upper Zakum and Middle Eastern medium sour barrels is China, who must pivot to importing similar grades as Chinese country level refinery runs increase through 2024 on demand increases, yield shifts and new refinery capacity," he added.
Exports of Upper Zakum to China, India, South Korea, Thailand and Singapore fell about 50% or more in March from a year earlier, Kpler data showed, while supply to Japan slipped 13%.
ADNOC notified term customers late last year that their Upper Zakum supply for 2024 will be reduced and offered to replace it with Murban, its flagship grade.
With less Upper Zakum supply and more Murban in the market, the medium-sour Dubai benchmark has tightened while Murban futures, the light-sour price marker, has weakened, Imsirovic said.
Asian refiners have turned to similar quality oil from Qatar and Saudi Arabia to replace Upper Zakum, traders said, as Murban is of a lighter quality.
Last week, ADNOC increased Murban export forecasts from June to October to between 1.631 million bpd and 1.658 million bpd. Kpler data showed exports averaged at 1.1 million bpd in 2023.
The jump in Murban supply has weighed on prices, narrowing its gap with Upper Zakum to about 10 cents a barrel, versus the typical 80-cent gap, a Singapore-based trader said.
