Some Asian refiners have offered about US$20 a barrel above official prices to buy Upper Zakum crude from the United Arab Emirates as processors scramble for diesel-rich grades. Cargoes due for May collection were bid well above ADNOC's official selling prices, which were set sharply higher for May than for April. The surge in bids comes as shipments of several Middle Eastern grades have been disrupted by the Iran war and as refiners also eye U.S. Barrels after an arbitrage opened. The price gap is forcing refiners to reprice supply and reshuffle feedstock plans.
Sharp premiums for a diesel-heavy grade
Traders say buyers in Asia have offered roughly US$20 a barrel more than official levels to secure Upper Zakum cargoes. Some bids for May-loading shipments were at least US$5 a barrel above official selling prices, according to market participants. The unusually large premiums contrast with how long-term buyers usually take their pre-agreed volumes at ADNOC's official prices.
Upper Zakum is favoured by refiners that need middle distillates. It yields a higher share of diesel and jet fuel when refined. That makes it more valuable now, when regional supplies of medium-sour crude are tight.
The cargoes being marketed in recent weeks are in storage near Fujairah. They can be loaded by ship-to-ship transfer off the port. Traders say those volumes had been placed there before the conflict escalated in late February.
Supply routes and official pricing shifted
ADNOC has kept exports of its flagship Murban grade flowing through Fujairah via a pipeline. But other grades that load inside the Persian Gulf, at locations such as Zirku Island and Das, remain largely disrupted because they need to transit the Strait of Hormuz.
That transit has been affected by the wider Middle East conflict.
Official selling prices for April showed Murban at US$69.45 a barrel. ADNOC set May-loading crude at parity with Murban, at US$110.75 a barrel on a list seen by market participants. Traders flagged that May prices were set significantly higher than April levels. ADNOC didn't immediately respond to a request for comment on the recent bids.
Refiners change sourcing as arbitrage opens
Higher Middle Eastern prices opened an arbitrage for U.S. Crude to head to Asia. Trade sources said West Texas Intermediate has been trading US$0.30 to US$0.75 a barrel below Murban, making U.S. Barrels more competitive on a delivered-cost basis. Falling freight rates for supertankers from the U.S. Gulf Coast to Asia have helped too, according to tanker-rate data cited by market sources.
Some Asian refiners are therefore moving to buy more U.S. Crude in the weeks ahead. The shift reflects a simple choice. Middle Eastern barrels are getting pricier and more volatile. U.S. Grades can undercut them once freight and timing are factored in.
Added pressure comes from the risk to cheap Russian supplies. Traders noted concerns that potential U.S. Penalties or secondary tariffs on buyers of Russian oil could disrupt flows from Russia. That has made Asian buyers rethink reliance on any single source.
Refinery economics and the squeeze on diesel supply
Many Asian refineries are configured to run medium-sour crude. Those refineries get more diesel and jet fuel from such grades. When those supplies become scarce, refiners either pay up for the right crude or accept lower diesel yields from alternative grades.
The premium for Upper Zakum shows how much refiners are willing to pay to preserve diesel output. Paying a premium alters refinery margins. It raises feedstock costs. And those costs typically flow through to refined product economics.
Some refiners will switch run patterns. Others will chase more expensive cargoes. The result is a repricing of monthly term barrels and more active spot-market trading.
ADNOC said in early June that it would lower Murban crude exports as it plans to process more of the grade domestically at its Ruwais refinery. The company flagged a drop in Murban export volumes of between 100,000 barrels per day and 177,000 barrels per day from September 2025 to May 2026, linked to feedstock optimisation at Ruwais.
Those adjustments are separate from the immediate disruptions caused by the Iran war. But they do squeeze the pool of Middle Eastern barrels available to international buyers. Reduced export volumes add to the supply tightness that's driving buyers to pay higher prices for grades like Upper Zakum.
Refiners that secure diesel-rich cargoes keep their middle-distillate yields. That helps them meet local diesel demand and maintain product cracks. Traders who reposition tankers and storage near Fujairah can capture arbitrage opportunities and short-term premiums.
Consumers ultimately face the consequences. Higher feedstock costs push up refining costs.
Where margins are thin, refiners may cut runs. That would lower product supply and put upward pressure on diesel prices in regional markets.
The market reaction has been immediate. Cargoes that would normally trade at official selling levels are being repriced on the spot. Ship-to-ship transfers off Fujairah have become a practical workaround for barrels that would otherwise be stuck behind transit routes.
That liquidity in Fujairah storage is helping match sellers and buyers amid the disruption inside the Gulf. But it also creates a two-tier market. Long-term term buyers following official price windows may lose access to some cargoes if they don't match cash bids on the spot market.
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Some Asian refiners bid about US$20 a barrel above official levels for Upper Zakum, while others switched to U.S. Barrels that were cheaper on a delivered-cost basis.
This article was created with AI assistance.
