July 5, 2022

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Strong Refining Demand Underpins North Sea Trade

  • August North Sea crude exports are down 5% on the month, to 735,000 b/d, with more Sverdrup parceled for short-haul destinations.
  • The dated Brent complex remains in bullish shape with aggressive bidding from paper players adding to prompt strength.
  • The refining sector will remain the core price driver in the short-term since seasonal demand is undeterred by lofty prices.

    North Sea spot prices have been on a bull run since May, coinciding with the start of the driving season. Record-high margins are enticing refiners to run as hard as they can to crank out transportation fuels and revert a decline in inventories.

    But product prices have been rising faster than supply and that bullishness has spilled over the whole Brent complex, which nevertheless endured an $11 per barrel hammering on Jul. 5.

    Hungry Refiners

    Summer road and air travel has injected a fresh jolt of momentum into the North Sea spot trade. The global middle distillate market — diesel and jet fuel — was already screaming for supply, owing to lower Russian product exports to Europe. But the summer driving season is compounding the tightness by increasing demand for gasoline, too.

    Regional refiners are boosting their runs to make up for the shortfall of Russian product exports, but capacity is lacking. A lot of inefficiencies are plaguing the system following the gradual disappearance of Russia’s Urals blend from the regional crude regimen and the resulting change in crude slates.

    Refiners in Europe are earning $64 per barrel on converting crude to diesel and nearly the same making jet fuel, Energy Intelligence data show. No doubt, the refining market has been driving crude prices up the hill. The Brent prompt premium over deliveries in six month is straying north of $15/bbl, in large part pulled up by higher physical prices.

    North Sea Loadings for August and July 2022
    (million bbl) AugJul
    NorwayStandard CargoNo.Vol.No.Vol.
    Ekofisk600169.6127.2
    Oseberg60042.453.0
    Troll60074.295.4
    UK
    Brent60021.231.8
    Forties60095.4116.6
    Total----22.8--24.0
    Total ('000 b/d)----735--774

    Bullish Structure

    The five streams that make up the dated Brent price — namely Brent, Forties, Oseberg, Ekofisk and Troll (BFOET) — have been trending up since the beginning of May. Brent and Forties, usually the cheapest grades in the pricing basket, are selling at record premiums of $5/bbl. As for gasoline-rich Ekofisk or middle distillate-rich Oseberg, the premiums are $7/bbl.

    The weekly Brent contract-for-difference (CFD) swaps, which tie the Brent forward and dated Brent prices together, show a steep backwardation of more than $8/bbl for the first, front-week swap. This helped push the dated Brent price well above the front-month future price, at $8.30/bbl on Jul. 4.

    Some of the market participants have also been playing the same tricks to push the price around. “The bull plays seen in CFDs by a major Chinese player and trade houses mean that CFDs were paid up aggressively in the front despite very limited sell side interest," an oil broker told Energy Intelligence.

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

    Sverdrup on a Roll

    Norway’s Johan Sverdrup continues to carve out new markets in Europe, with Finland’s Neste Oil (Porvoo refinery) and Sweden’s Preemraf (Lysekil refinery) emerging as two leading buyers in the region. Since March 2022, Porvoo has purchased an average 95,000 b/d of Sverdrup, while Lysekil imported an average 60,000 b/d over the past four months. Some has also gone to Rotterdam storage.

    The change in trading patterns is clearly visible in the Sverdrup program. Until June this year, 80%-90% of Sverdrup volumes were destined to Asia and exported on very large crude carriers (VLCC). In June, however, only 50% of shipments were on VLCCs. Only one cargo was a VLCC in July, and two in August.

    This change in shipping logistics illustrate the change is supply flows. More Sverdrup is now staying in Europe, where, as a medium, sour grade, it helps replace the sanctioned volumes of Russia’s Urals.

    The additional benefit for regional buyers is that Sverdrup is a short-haul crude that can sail to its final destination in a matter of days, and so with minimal damage from the backwardation — that is, a minimal loss of time value when prompt prices are higher than future prices.

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    North Sea Loading Program for August 2022
    Loading(bbl)(b/d)ParcelEquity
    Brent
    01-03600,00019,355B0703Repsol/Glencore
    16-18600,00019,355B0801Glencore
    Forties
    09-11600,00019,355F0801Eni
    12-14600,00019,355F0802BP
    15-17600,00019,355F0803Shell
    17-19600,00019,355F0804Total
    20-22600,00019,355F0805CNOOC
    23-25600,00019,355F0806Suncor
    25-27600,00019,355F0807Shell
    28-30600,00019,355F0808Eni
    30-01600,00019,355F0809BP
    Oseberg
    07-09600,00019,35520220701Equinor
    13-15600,00019,35520220702Equinor
    20-22600,00019,35520220703ConocoPhillips/Equinor/Lime/MVest
    27-29600,00019,35520220704Equinor
    Ekofisk
    31-02600,00019,355C12996Shell
    02-04600,00019,355C12987SpiritEnergy
    04-06600,00019,355C12998Total
    06-08600,00019,355C13001BP
    08-10600,00019,355C12989ConocoPhillips
    10-12600,00019,355C12999Total
    12-14600,00019,355C13002BP
    14-16600,00019,355C12993Equinor
    16-18600,00019,355C12990ConocoPhillips
    18-20600,00019,355C12994Eni
    20-22600,00019,355C12988Suncor
    22-24600,00019,355C13000Total
    24-26600,00019,355C12995Eni
    26-28600,00019,355C12992Equinor
    28-30600,00019,355C13003BP
    30-01600,00019,355C12991ConocoPhillips
    Troll
    01-03600,00019,35520220709Equinor
    09-11600,00019,35520220801Equinor
    14-16600,00019,35520220802Equinor
    18-20600,00019,35520220803Equinor
    23-25600,00019,35520220804ConocoPhillips/Equinor/Idemitsu
    27-29600,00019,35520220805Equinor
    30-01600,00019,35520220806Okea/Shell
    Johan Sverdrup
    02-04700,00022,58120220830Equinor
    03-05700,00022,58120220831Equinor
    04-06700,00022,58120220832Lundin
    05-07700,00022,58120220833Equinor
    07-09650,00020,96820220834AkerBP
    08-10600,00019,35520220835Total
    09-11700,00022,58120220836Equinor
    10-12700,00022,58120220837Equinor
    12-14700,00022,58120220838Equinor
    13-15700,00022,58120220839Lundin
    14-16700,00022,58120220840Equinor
    16-18700,00022,58120220841Equinor
    17-19700,00022,58120220842Equinor
    18-201,000,00032,25820220843Lundin
    20-22650,00020,96820220844AkerBP
    21-23700,00022,58120220845Equinor
    23-25700,00022,58120220846Equinor
    24-26600,00019,35520220847Total
    25-271,000,00032,25820220848Lundin
    27-29700,00022,58120220849Equinor
    28-30700,00022,58120220850Equinor
    29-31650,00020,96820220851AkerBP
    30-01700,00022,58120220852Equinor
    Total BFOET*22,800,000735,48438 cargoes--
    Total Johan Sverdrup16,350,000527,41923 cargoes--
    Total BFOET Plus Johan Sverdrup28,250,000911,29061 cargoes--

    Julien Mathonniere, London