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North Sea crude oil shows resilience, differentials firm on Asian arbitrage window

https://www.chemnet.com   Oct 18,2018 S&P Global Platts
The North Sea crude oil complex has firmed to fresh highs, supported by bidding interest for most of the BFOE grades in the Platts Market on Close process prompted by a window of arbitrage opportunity from Europe to Asia.

North Sea grades have proven resilient relative to the wider European sweet crude oil market, where streams like Kazakh CPC Blend and Azeri Light were seen hitting fresh lows.
Key grade Forties in particular has seen some of the most active bidding interest across the 10 days to month ahead window. It was assessed at an 80 cent/b premium to Dated Brent Tuesday, its highest since May 17, when it reached 85 cents/b.

In Tuesday's Brent Blend window of the Platts MOC, a Hartree offer for oil loading November 1-3 failed to attract any buyers at Dated Brent plus 35 cents/b, while a Glencore bid for barrels loading between November 5-18 rose to a 75 cents/b premium to Dated Brent.

Elsewhere, Oseberg and Ekofisk were pricing at levels not seen since May, similar to Forties.

"I think it's very strong long-haul demand for BFOE," a trader said.

"Europe is lagging Asia for crude demand," the trader said, adding that other European grades were "trapped" and struggling to find Asian demand.

A string of VLCCs have been lining up at the Forties loading terminal at Hound Point of late, while more VLCCs were seen taking Brent and Ekofisk at the ship-to-ship area at Southwold, S&P Global trade flow software cFlow showed.

Record-high freight rates have soured arbitrage economics between Northwest Europe and the Far East since early October, but the premium of Brent futures to Dubai swaps (EFS) has conceded some margin opportunities by narrowing slightly.

"I don't think ESPO and other [Eastern] alternatives have really corrected down. They simply have stopped going up," the first trader said, describing demand-side fundamentals in the east with Russian ESPO crude oil as a proxy.

Meanwhile, the strength in the physical BFOE complex was mirrored in the paper markets, where Brent Contracts for Difference (CFDs) were holding on to a prompt backwardated structure.

A market participant said Wednesday that support in the paper market would likely hold until the expiry of the December/January ICE Brent futures spread.

"Thereafter the market looks weaker," the trader said, adding that "margins are a real concern [and] sweet [looks] very bad versus sour."
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