November 7, 2022

WWW.ENERGYINTEL.COM

North Sea Claws Way Out of Buying Lull

  • Brent, Forties, Oseberg, Ekofisk and Troll crude exports are down 5.6% month on month, at 736,000 b/d.
  • North Sea trade regains momentum after refining strikes in France prompted some delays, cancellations and rushed cargo re-sales.
  • Johan Sverdrup takes the lion’s share in replacing Urals in Europe, with the largest-ever loading program since the stream went online.

The North Sea trade is slowly regaining momentum after a phase of turbulence that had forced some refineries to delay purchases. Refining strikes in France created a short depression in prompt demand, in turn enticing sellers to reallocate cargoes into a rather quiet and dismissive spot market already flooded with US light oil.

Brent has been mostly range-bound since about two days after Opec-plus cut its nominal production by 2 million barrels per day on Oct. 5. But the time spreads on oil futures have continued to widen, showing how quick the prompt market is poised to flare up.

Light Loses Momentum

Demand for North Sea light, sweet crude has cooled off in response to the growing appetite for heavier, sour barrels. As regional refiners crank up production of winter-specification diesel, crudes with higher middle distillates yields are a better fit than lighter, regional grades.

For example, during the second half of October, some cargoes of Forties, a lighter grade, failed to find a buyer despite being offered in open market at discounts of 65¢ to dated Brent. Among regular buyers, both Germany and Italy stepped back, while Poland also bought less.

Meanwhile, a wide Brent-West Texas Intermediate spread has drawn a lot of competitive arbitrage-barrels from the US, putting more pressure on some regional North Sea grades.

Refining strikes in France prompted the temporary shutdown of two TotalEnergies refineries, reducing their intake of Ekofisk. The weakness in the spot market was felt through the wider Brent complex, with dated Brent dipping below the front-month future contract.

Margins for ultra-low-sulfur diesel (ULSD) are still straying north of $70 per barrel, signaling that this market wants more. The prospect of losing Urals supply once the EU crude ban is in place on Dec. 5 has fueled the appetite for medium, sour barrels of equivalent quality, including those available in the North Sea.

North Sea Loadings for December and November 2022
(million bbl) DecNov
NorwayStandard CargoNo.Vol.No.Vol.
Ekofisk600137.8137.8
Oseberg60031.842.4
Troll60084.895.4
UK
Brent60031.831.8
Forties600116.6106
Total----22.8--23.4
Total ('000 b/d)----736--780

Sverdrup on a Roll

As Urals gets replaced by other, equivalent grades, the market has become less efficient in terms of transportation. A typical six-day journey for a Urals cargo traveling from the Baltic to Rotterdam is now taking longer now that those barrels have to travel further afield.

This is why Norwegian medium, sour crude is advantaged and has gained the most market share, especially Johan Sverdrup, which will comprise 640,000 b/d in December. This is the longest program since Sverdrup export hit the market for the first time in Dec 2019.

The field is expected to start Phase 2 production in December, increasing capacity by 220,000 barrels of oil equivalent per day and bringing overall output to 755,000 b/d, according to Equinor, the field’s operator. For Norway, the timing fits perfectly with the looming EU ban on Russian crude imports.

Created with Highcharts 9.0.0('000 b/d)NORTH SEA LOADINGS: DATED BRENT BENCHMARK STREAMSFortiesEkofiskTrollOsebergBrentNov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'22Aug'22Sep'22Oct'22Nov'22Dec'2202505007501000Source: Energy Intelligence

Wider Spreads

A 2 million b/d headline cut by Opec-plus producers lifted the Brent flat price by about $10. But the front-month future contract has since hovered within a narrow $90-$95 trading range and struggled to break higher, though it has flirted with $99 in recent days.

The real action, however, is in forward time spreads.

The last time Brent traded in the mid-$90 range in August this year, the prompt premium to deliveries in six months ebbed at $3.92/bbl. It is now north of $8/bbl. The same premium to deliveries in January 2024 is at $12.48, nearly double of the $6.50/bbl where it was in mid-August.

The steep backwardation in the time spreads reflects a tighter market, and part of the prompt strength has clearly percolated from the middle distillate market. After bottoming out to $923 per metric ton in mid-September, the ICE future low-sulfur gasoil contract is trading again in the four digit zone at $1,115/ton after a spike to $1,282/ton.

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North Sea Loading Program for December 2022
Loading(bbl)(b/d)ParcelEquity
Brent
08-10600,00019,355B1201Repsol
17-19600,00019,355B1202Glencore
26-28600,00019,355B1203TotalEnergies
Forties
02-04600,00019,355F1201Suncor
05-07600,00019,355F1202BP
07-09600,00019,355F1203CNOOC
10-12600,00019,355F1204TotalEnergies
13-15600,00019,355F1205Shell
15-17600,00019,355F1206Eni
18-20600,00019,355F1207Repsol
21-23600,00019,355F1208BP
23-25600,00019,355F1209Shell
26-28600,00019,355F1210Suncor
29-31600,00019,355F1211Shell
Oseberg
11-13600,00019,35520221201Equinor
18-20600,00019,35520221202ConocoPhillips/Equinor/Lime/Mvest
26-28600,00019,35520221203Equinor
Ekofisk
01-03600,00019,355C13056TotalEnergies
04-06600,00019,355C13065Sval Energi
06-08600,00019,355C13054Shell
09-11600,00019,355C13060ConocoPhillips
11-13600,00019,355C13057TotalEnergies
13-15600,00019,355C13052BP
15-17600,00019,355C13067Eni
17-19600,00019,355C13066Sval Energi
19-21600,00019,355C13061ConocoPhillips
22-24600,00019,355C13064Eni
24-26600,00019,355C13058TotalEnergies
27-29600,00019,355C13053BP
30-01600,00019,355C13062ConocoPhillips
Troll
03-05600,00019,35520221201Equinor
08-10600,00019,35520221208Equinor
12-14600,00019,35520221202ConocoPhillips/Equinor/Idemitsu
16-18600,00019,35520221203Neptune
19-21600,00019,35520221204Equinor
23-25600,00019,35520221205Equinor
27-29600,00019,35520221206Equinor
30-01600,00019,35520221207PGNIG/Var Energy
Johan Sverdrup
01-03600,00019,35520221230TotalEnergies
02-04700,00022,58120221231Equinor
03-05700,00022,58120221232Equinor
04-06600,00019,35520221233Equinor
06-082,000,00064,51620221234AkerBP
09-11700,00022,58120221235Equinor
10-12700,00022,58120221236Equinor
12-14600,00019,35520221237TotalEnergies
13-15600,00019,35520221238Equinor
14-16700,00022,58120221239Lundin
15-17700,00022,58120221240Equinor
16-18700,00022,58120221241Lundin
16-18600,00019,35520221242Equinor
17-19600,00019,35520221243TotalEnergies
18-20700,00022,58120221244Equinor
19-21650,00020,96820221245AkerBP
20-22700,00022,58120221246Equinor
21-23600,00019,35520221247Equinor
22-24700,00022,58120221248Lundin
23-25700,00022,58120221249Equinor
24-26700,00022,58120221250Equinor
25-27600,00019,35520221251TotalEnergies
26-28600,00019,35520221252Equinor
27-29700,00022,58120221253Lundin
28-30700,00022,58120221254Equinor
29-31600,00019,35520221255Equinor
29-31700,00022,58120221256Lundin
30-01700,00022,58120221257Equinor
Total BFOET*21,600,000696,77438 cargoes--
Total Johan Sverdrup19,850,000640,32328 cargoes--
Total BFOET Plus Johan Sverdrup28,200,000909,67766 cargoes--

Julien Mathonniere, London