Sulfur inversion: dated Brent benchmark at discount to Mideast crudes in February

SINGAPORE (Reuters) - The crude oil benchmark for global low-sulfur, or sweet, supplies in February flipped to a discount to the high-sulfur, or sour, Middle East benchmarks, as the market is starved for heavy crude amid U.S. sanctions and a glut of sweet supply.

FILE PHOTO: An oil pump is seen near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson

The average price for dated Brent, based on a basket of physical sweet crude grades produced in the North Sea that underpins the Brent oil futures, fell below the average prices for sour benchmarks Oman and Dubai, four trade sources said on Friday, citing data from price reporting agency S&P Global Platts.

This is the second time since November that the monthly average of the sweet benchmark is at a discount to the monthly average of the sour grades.

The current shift reflects the scarcity of heavy sour crudes as sanctions by the United States on Venezuela and Iran, key sour crude producers, have curtailed their exports. Also, supply cuts by the Organization of the Petroleum Exporting Countries (OPEC), particularly by de facto leader Saudi Arabia, have further reduced sour supplies.

At the same time, rising production of light, sweet shale crude from the United States, currently the world’s largest oil producer, has flooded the market with low-sulfur supply.

Dated Brent averaged at $64.032 a barrel in February, against an average of $64.575 and $64.681 a barrel for Dubai and Oman, respectively, the traders said, citing Platts prices.

Dated Brent last fell below Middle East benchmarks in November when the average was 82 cents a barrel below Dubai and $1.12 a barrel below Oman, according to data from the trade sources.

The monthly averages for February for Dubai and Oman as quoted by Platts are indicated in the table. Middle East producers set their monthly official selling prices (OSPs) based on these averages.

Saudi Aramco changed the benchmark for setting its official selling prices to Asia starting from October to the average of Platts Dubai and DME Oman crude futures.

The average reference price for February-loading Saudi crude OSPs to Asia is set at $64.528 a barrel based partly on an average April DME Oman crude futures at $64.68.

Reporting by Florence Tan; editing by Christian Schmollinger