February 6, 2023

WWW.ENERGYINTEL.COM

North Sea Struggles in Product-Driven Market

  • Brent, Forties, Oseberg, Ekofisk and Troll (BFOET) crude exports making up the dated Brent pricing basket are up 7.5% on the year at 716,000 b/d.
  • Gasoil stockpiling and a flood of US crude have put downward pressure on the forward curve and left Brent forward prices in shallow contango.
  • Norway has ramped up exports of medium, sour Johan Sverdrup crude to a fresh high, buoyed by higher demand from Northwest Europe refiners.

North Sea trade is directionless, with sticky Brent levels hovering around $85 per barrel. The forward curve is still showing a shallow contango over the front three weeks, reflecting ample supply of light, sweet crude in Europe. As a result, there is little froth in the spot market, and differentials have barely moved from their previous month’s levels.

On the sour side, regional supply is benefiting from another increase in Norway’s Johan Sverdrup loadings, this time to a new high of 745,000 barrels per day.

Slow Brent Pulse

Brent has been trading sideways. A market floor of $75-$80/bbl and ceiling of $90-$95/bbl have formed, resulting in the North Sea benchmark seesawing around $85/bbl for nearly a month.

“The North Sea and Mediterranean look well supplied to me," a trader told Energy Intelligence, adding that a post-Christmas rally of Azeri Light, a distillate-rich, light sweet grade from Azerbaijan, has fizzled out. “There is plenty of WTI [crude] coming to Europe, and with the slightly cheaper freight, West African crude was also plentiful into Europe," the trader said.

As a result, spot demand for North Sea grades remains soft. Forties is still trading at a 70¢ discount to dated Brent and continues to set the benchmark price as the cheapest grade in the BFOET pricing basket.

The weekly Brent CFD swaps, which tie the Brent forward and dated Brent prices, are showing a shallow contango over the front three weeks. A contango is a price structure where prompt oil is cheaper than barrels for later delivery, which can encourage storage.

The current contango reflects a build-up in regional product inventories — diesel, jet fuel and heating oil — that took place ahead of the EU ban on Russian refined products.

North Sea Loadings for March and February 2023
(million bbl) MarFeb
NorwayStandard CargoNo.Vol.No.Vol.
Ekofisk600137.8127.2
Oseberg60042.431.8
Troll60063.674.2
UK
Brent60021.221.2
Forties600127.295.4
Total----22.2--19.8
Total ('000 b/d)----716--707

Turnaround Time

Diesel stockpiles in the Amsterdam-Rotterdam-Antwerp hub reached 16.5 million barrels on Jan. 19, their highest level since June 2021. And so far demand in Europe is fairly stable, indicating there is no immediate appetite for more crude.

“I think the market was getting way too ahead of itself on oil — too much too soon. And now the data also showing builds in US, too," a source commented.

Brent is now trading April barrels, which corresponds with the peak of semi-annual refinery turnarounds. This means that some refining capacity will temporarily be offline, reducing the need for crude.

Whether the current price contango evaporates, the Brent April/May future spread is already coming off. As of Feb. 6, the dated Brent spot price was trading at around $1.15/bbl below the future price, reflecting the physical market weakness.

Created with Highcharts 9.0.0('000/b/d)NORTH SEA LOADINGS: DATED BRENT BENCHMARK STREAMSFortiesEkofiskTrollOsebergBrentMar'23Feb'23Jan'23Dec'22Nov'22Oct'22Sep'22Aug'22Jul'22Jun'22May'22Apr'22Mar'2202004006008001000Source: Energy Intelligence

Diesel Focus

With diesel the focus of the regional market, European refiners need to process heavier grades that yield a larger portion. This challenge is complicated by the fact that Russia’s medium, sour Urals is now off the table.

“With these diesel cracks I am sure all linear programs are screaming for distillate rich crudes,” a trader said, referring to a software used to tailor crude slates and maximize a refinery’s margins.

The continuous increase in medium, sour crude exports from Norway has helped meet this demand in a rather timely way. More than 745,000 b/d of Johan Sverdrup are due to load in March, a 42,000 b/d incremental gain on February.

Since March 2022, almost all of the Sverdrup program stays in Europe. Refiners in the Netherlands, Finland’s Neste Oil and Poland’s PKN Orlen are the largest buyers. “The Sverdrup thing is simply a Urals replacement given the need for not just diesel but internal production of vacuum gasoil (VGO) to feed upgraders," the trader said, especially without Russian VGO.

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North Sea Loading Program for March 2023
Loading(bbl)(b/d)ParcelEquity
Brent
14-16600,00019,355B0301Shell
25-27600,00019,355B0302Shell
Forties
28-02600,00019,355F0301Shell
02-04600,00019,355F0302Eni
05-07600,00019,355F0303CNOOC
08-10600,00019,355F0304Shell
10-12600,00019,355F0305Glencore
13-15600,00019,355F0306Shell
16-18600,00019,355F0307Suncor
19-21600,00019,355F0308BP
22-24600,00019,355F0309CNOOC
25-27600,00019,355F0310Eni
28-30600,00019,355F0311TotalEnergies
30-01600,00019,355F0312BP
Oseberg
10-12600,00019,35520230301    Equinor
18-20600,00019,35520230302    TotalEnergies
26-28600,00019,35520230303    ConocoPhillips/DNO/Equinor
31-02600,00019,35520230303    Equinor
Ekofisk
02-04600,00019,355C13105TotalEnergies
04-06600,00019,355C13108Shell
06-08600,00019,355C13100BP
09-11600,00019,355C13103Eni
12-14600,00019,355C13097Equinor
14-16600,00019,355C13109Shell
16-18600,00019,355C13101BP
19-21600,00019,355C13098ConocoPhillips
22-24600,00019,355C13104Eni
24-26600,00019,355C13106TotalEnergies
27-29600,00019,355C13110Shell
29-31600,00019,355C13102BP
30-01600,00019,355C13099ConocoPhillips
Troll
05-07600,00019,35520230301    Neptune
10-12600,00019,35520230302    Equinor
15-17600,00019,35520230303    Idemitsu/PGING/Var
20-22600,00019,35520230304    ConocoPhillips/Equinor/Sval
24-26600,00019,35520230304    Equinor
29-31600,00019,35520230306    Okea/PGING/Shell
Johan Sverdrup
28-02700,00022,58120230251Equinor
28-02700,00022,58120230256Aker BP
01-03700,00022,58120230253Equinor
02-04700,00022,58120230254Equinor
03-05600,00019,35520230255TotalEnergies
04-06600,00019,35520230330Equinor
04-061,000,00032,25820230331Aker BP
06-08700,00022,58120230332Equinor
08-10700,00022,58120230333Aker BP
09-11600,00019,35520230334Equinor
10-12700,00022,58120230335Aker BP
11-13700,00022,58120230336Equinor
12-141,000,00032,25820230337Aker BP
13-15600,00019,35520230338Equinor
13-15700,00022,58120230339Equinor
14-16700,00022,58120230340TotalEnergies
15-17600,00019,35520230341Equinor
16-18700,00022,58120230342Equinor
17-19600,00019,35520230343Equinor
19-21700,00022,58120230344Equinor
19-211,000,00032,25820230345Aker BP
20-22600,00019,35520230346Equinor
21-23700,00022,58120230347Equinor
23-25600,00019,35520230348Equinor
23-25700,00022,58120230349Aker BP
24-26700,00022,58120230350TotalEnergies
24-26700,00022,58120230351Equinor
25-27700,00022,58120230352Equinor
27-29600,00019,35520230353Equinor
28-30700,00022,58120230354Equinor
29-31700,00022,58120230355Equinor
30-01700,00022,58120230356Equinor
30-01700,00022,58120230357Aker BP
Total BFOET*22,200,000716,12937 cargoes--
Total Johan Sverdrup23,100,000745,16133 cargoes--
Total BFOET Plus Johan Sverdrup26,700,000861,29070 cargoes--

Julien Mathonniere, London