June 6, 2022

WWW.ENERGYINTEL.COM

EU Ban Kicks North Sea Trade Back to Life

  • July North Sea crude exports regain over 43% on the month to 774,000 barrels per day, with the gasoline-packed Ekofisk stream now back on line.

  • European demand is crowding out shipments to Asia as more buyers in the region are vying for the same light, sweet barrels and showing a preference for short-haul crude given the current backwardation and price volatility.

    The spot market for North Sea crude oil is ebullient again, buoyed by an uptick in summer demand and prolonged tightness in the product market. Adding to the ongoing shortage in middle distillates, gasoline is now in high demand, too.

    As a result, wide premiums have returned to the physical market, responding in large part to hefty refining margins and product cracks, but also to a new wave of speculative interest in the paper market.

    New Destinations

    After a dip in June due to maintenance, the Brent, Forties, Oseberg, Ekofisk and Troll (BFOET) loadings that comprise the Brent pricing complex are back to normal — that is to say, roughly in line with year-ago levels, or an average 774,000 b/d for July.

    Crucially, more volumes are remaining in Europe to address the supply shortages stemming from the recent EU ban on Russian oil. Less Forties, a potential substitute for Russia’s Urals crude, is getting shipped to Asia and instead is scooped up by countries such as Italy, Germany, Lithuania or Poland.

    After bottoming out in late April, physical differentials have been rising. Brent rebounded from a discount of more than $1 to dated Brent to a $3.25 per barrel premium. Likewise, Forties is now trading close to $2.50/bbl, up from a 35¢ discount to dated Brent.

    With the driving season in the Northern Hemisphere now in full force, a gasoline-rich grade like Ekofisk can command a premium of $5.6/bbl. Middle distillate-rich Oseberg, an ideal feedstock for addressing the current diesel and jet fuel shortage in Europe, is even higher at $5.75/bbl.

    North Sea Loadings for July and June 2022
    (million bbl) JulJun
    NorwayStandard CargoNo.Vol.No.Vol.
    Ekofisk600127.221.2
    Oseberg60053.042.4
    Troll60095.463.6
    UK
    Brent60031.821.2
    Forties600116.6137.8
    Total----24.0--16.2
    Total ('000 b/d)----774--540

    Bullish Play

    The spot market welcomed the new August trading cycle with a spike in time spreads. The Brent prompt premium flared up to a whopping $7.24 per barrel on May 31 as traders rolled their exposure to the new front-month when the ICE Brent July contract expired.

    The spike denotes two distinct phenomena. First, it partly reflects the fact that more traders carry out roll trades (as opposed to outright trades) to limit the cost of their margin calls. This means more trades are being rolled at contract expiry, leading to potential price spikes.

    Second, the time spreads widened in anticipation of a bull play in the paper market, one broker told Energy Intelligence.

    This approach effectively reached a climax when a front-month future contract expired as counterparties selling the front roll may have tried to squeeze the short-sellers and force them to repurchase the positions they had previously borrowed at a higher price.

    Created with Highcharts 9.0.0('000 b/d)NORTH SEA LOADINGS: DATED BRENT BENCHMARK STREAMSFortiesEkofiskTrollOsebergBrentJul'22Jun'22May'22Apr'22Mar'22Feb'22Jan'22Dec'21Nov'21Oct'21Sep'21Aug'21Jul'2102505007501,000Source: Energy Intelligence

    Rekindled Premium

    Meanwhile, speculative interest has also returned to the paper market. Net managed money positions in Brent have increased for three consecutive weeks and gained nearly 50 million barrels to 210 million bbl.

    Refining margins have hit a fresh multiyear high, pointing to continued product tightness — not only diesel and jet fuel, but now gasoline. Refining Brent in Europe yields a profit of more than $27/bbl, according to Energy Intelligence data, which is supporting spot cargo purchases in a fundamentally undersupplied product market.

    The weekly Brent CFD swaps, which tie the Brent forward and future markets together, have reshaped into a steep backwardated structure, signaling a renewed appetite for prompt barrels. The front-week CFD swap is trading at a steep $5.25/bbl, lifting the dated Brent price well above the front-month future price, which was already straying north of $120/bbl.

    omb220606_Sankey.svg

    North Sea Loading Program for July 2022
    LoadingBarrels(b/d)ParcelEquity
    Brent
    04-06600,00019,355B0701Glencore
    17-19600,00019,355B0702EnQuest
    24-26600,00019,355B0703Repsol/Glencore
    Forties
    05-07600,00019,355F0701Shell
    08-10600,00019,355F0702Total
    10-12600,00019,355F0703Shell
    13-15600,00019,355F0704BP
    15-17600,00019,355F0705Shell
    18-20600,00019,355F0706Eni
    21-23600,00019,355F0707BP
    23-25600,00019,355F0708Glencore
    25-27600,00019,355F0709Shell
    28-30600,00019,355F0710Suncor
    30-01600,00019,355F0711CNOOC
    Oseberg
    05-07600,00019,35520220701Total
    11-13600,00019,35520220702Equinor
    17-19600,00019,35520220703Equinor
    23-24600,00019,35520220704ConocoPhillips/Equinor/Lime
    29-31600,00019,35520220705Equinor
    Ekofisk
    30-02600,00019,355C12975Total
    03-05600,00019,355C12980Shell
    06-08600,00019,355C12984Spirit Energy
    09-11600,00019,355C12981ConocoPhillips
    12-14600,00019,355C12976Total
    15-17600,00019,355C12985Eni
    17-19600,00019,355C12978BP
    19-21600,00019,355C12982ConocoPhillips
    22-24600,00019,355C12977Total
    25-27600,00019,355C12986Eni
    28-30600,00019,355C12979BP
    30-01600,00019,355C12983ConocoPhillips
    Troll
    30-02600,00019,35520220701Equinor
    06-08600,00019,35520220702Equinor
    08-10600,00019,35520220703Spirit Energy/Wintershall
    11-13600,00019,35520220704Equinor
    15-17600,00019,35520220705Neptune
    19-21600,00019,35520220706Equinor
    23-25600,00019,35520220707ConocoPhillips/Equinor/Indemitsu/Sval
    26-28600,00019,35520220708PGING
    30-01600,00019,35520220709Equinor
    Johan Sverdrup
    08-10600,00019,35520220730Equinor
    09-11700,00022,58120220731Equinor
    10-12600,00019,35520220732Equinor
    12-14600,00019,35520220733Lundin
    13-15600,00019,35520220734Equinor
    14-16700,00022,58120220735Equinor
    15-17600,00019,35520220736Equinor
    17-19600,00019,35520220737Total
    17-19700,00022,58120220738AkerBP
    19-21600,00019,35520220739Equinor
    20-22700,00022,58120220740Equinor
    21-23700,00022,58120220741AkerBP
    22-24600,00019,35520220742Equinor
    24-262,000,00064,51620220743Lundin
    27-29600,00019,35520220744Equinor
    29-31600,00019,35520220745Total
    29-31700,00022,58120220746Equinor
    30-01600,00019,35520220747Equinor
    Total BFOET*24,000,000774,19440 cargoes--
    Total Johan Sverdrup12,800,000412,90318 cargoes--
    Total BFOET Plus Johan Sverdrup29,000,000935,48458 cargoes--

    Julien Mathonniere, London