North Sea Trade Lags Paper Market Frenzy

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  • November North Sea exports will decline to 820,000 barrels per day, which is down 1.5% from October and 4.65% from last year’s levels.
  • Physical buyers are still in control given the steep Brent backwardation and the still-fledgling appetite from Asia.
  • Higher prices have increased feedstock costs without a commensurate rise in product margins, which explains why physical differentials are largely flat compared to dated Brent.

North Sea trading has been a theater of shadows recently, with a surge in prices projecting concerns, some overblown, about a tight forward market. In the background, physical differentials have remained subdued in light of current refining margins. Meanwhile, the winter fuel transition remains supportive, as well as fast inventory draws. But much of the price rally has external causes, some of which involve regional supply concerns.

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