Tighter Market and Black Sea Risk Jolt North Sea Trade

So far, prompt buying in the September cycle has been stronger than in August, reflecting in part a slightly tighter market and in part an uptick of arbitrage demand East of Suez.

The last round of Opec-plus curbs has tapered sour crude supply further and inflated Dubai-linked differentials.

With Brent trading at a discount to Dubai, the appeal of Atlantic basin cargoes in Asia has increased.

Meanwhile, a higher war-related risk factor in the Black Sea, notably on shipments of CPC Blend, has nudged buyers into action.

Prompt Bidding Firms Up

Prompt buying has awakened amid a fair bout of demand for Forties and Midland. On Aug. 9, TotalEnergies sold a couple of Forties cargoes to independent trader Mercuria at 95¢ per barrel in the Platts trading window. The French company has also scooped up several cargoes of Midland and is bidding for more.

A very large crude carrier of Forties is bound for Asia, most likely to South Korea, in the second half of September. “On the prompt, Total and [other companies] are bidding North Sea and WTI [crude], presumably because of the [Caspian Pipeline Consortium] risk factor that is pricing in to anything originating from Black Sea," a trader said.

Demand for Kazakhstan’s light, sour crude CPC Blend has inched up after the recent Ukrainian sea-drone attacks against Russian ships.

The weekly Brent CFD swaps between the Brent forward and dated Brent prices is now showing a steeper price backwardation. Wider time spreads should help work off inventories and keep the market well supplied. “The front spread keeps yo-yoing from +35¢ to +50¢, which says to me that [this] market is suitably supplied," a trader said.

Midland Defines the Price

WTI Midland now routinely exports more than twice the volumes of co-mingled BFOET exports to Europe. US sellers have been offering their Midland cargoes at competitive prices to carve out market share in the dated Brent market in Europe.

This aggressive selling contributed to the temporary dethroning of legacy BFOET grades like Brent and Forties as the cheapest in the dated Brent pricing pool. In June, Midland defined the dated Brent price in 17 of the 22 trading sessions during that month.

“Since Midland became part of the Brent it has played an active role in defining the value of the benchmark along with the other grades,” said Joel Hanley, global director crude and fuel oil markets at Platts.

The addition of large Midland volumes has boosted the North Sea benchmark, increasing liquidity in its underlying physical base and fleshing out the Brent assessment process that, some market participants thought, had become less representative of the fair value of light, sweet oil globally.

“In June, Midland tended to be among the most competitively priced, while in the current month Forties and Brent are currently defining the benchmark," Hanley said. Platts data shows that Midland has been the most competitive grade half of the time since its inclusion in dated Brent.

New Licensing Round

Meanwhile, the UK has launched a new upstream licensing round in the hope of breathing new life in a its mature North Sea petroleum province and bolster the country's energy security.

The North Sea Transition Authority said on Jul. 28 it is inviting companies to explore and potentially develop 898 blocks and partial blocks in the North Sea, which could lead to over 100 licenses being awarded by the end of June 2023.

The announcement has revived the ongoing controversy around the development of the Rosebank project west of Shetland, the UK's largest untapped oil and gas field, whose potential reserves are estimated to contain between 300 million and 500 million barrels of oil.

Norway’s Equinor, the principal developer of Rosebank, said in late July that it was nursing a "clear expectation" that the project would move forward, with approval expected soon and production to potentially start as early as 2026.