March 14, 2023

WWW.ENERGYINTEL.COM

North Sea Lacks Dynamism in Satiated Market

  • Brent, Forties, Oseberg, Ekofisk and Troll (BFOET) crude exports comprising dated Brent are down 5.7% on the year at 660,000 barrels per day, coinciding with a dip in refining demand during maintenance season.
  • The regional market has reached the satiation point, and buying interest is slowly warming up, but gasoline crack spreads ahead of driving season are soft.
  • The inclusion of US West Texas Intermediate (WTI) Midland crude in dated Brent from June 2023 is posing new challenges as technical details get ironed out.

The North Sea trade has been very slow to exhibit a more bullish mood given that the crude market is well-supplied and European product stocks are high.

Despite a vanishing contango, the market still lacks a prompt demand impulse to turn the corner. Most physical differentials have been flatlining, except Forties.

The dated Brent spot price is now roughly shadowing the front-month future contract.

Soft Inflection Point

The dated Brent complex is struggling to gain traction. Forties Blend has finally clawed its way out of discount and is now trading at a slim premium of only 10¢ to dated. Brent crude, meanwhile, has been steadily flatlining at a 30¢ premium since the end of January.

The price contango in the forward curve is slowing disappearing, with only the front Brent weekly CFD swap still trading below later dated prices.

Brent is now trading May barrels for processing after refinery turnarounds that will keep some capacity offline from mid-March to mid-May. The prompt market is thus slowly warming up in anticipation of the gasoline season starting in late spring.

But demand is far from buoyant. The Atlantic Basin is awash with product inventories, the result of precautionary stockpiling ahead of the EU embargo on Russian refined products. Diesel stocks in the Amsterdam-Rotterdam-Antwerp were at 18.7 million barrels on Mar. 10.

North Sea Loadings for April and March 2023
(million bbl) AprMar
NorwayStandard CargoNo.Vol.No.Vol.
Ekofisk600106.0137.8
Oseberg60031.842.4
Troll60074.263.6
UK
Brent60031.821.2
Forties600106127.2
Total----19.8--22.2
Total ('000 b/d)----660--716

Sweet Alternatives

This is why refiners are in no hurry to buy, as evidenced elsewhere by the continued dip in differential for Azeri Light crude — a prized, light sweet grade from the Caspian. So far this year, more than 1.5 million b/d of US light, sweet oil have sailed to Europe, adding to the plentiful sweet market that European refiners can tap.

The price spread between Brent and WTI hovers around $6/bbl, a level that can comfortable support the arbitrage of US crude volumes out to Europe.

The problem for European refiners once seasonal maintenance is over will be to produce enough gasoline when making diesel and jet fuel remains a lot more attractive. Refiners in Northwest Europe make $11.60 out of an incremental barrel of gasoline, compared with $30 for jet and $28 for diesel, Energy Intelligence data show.

Created with Highcharts 9.0.0('000 b/d)NORTH SEA LOADINGS: DATED BRENT BENCHMARK STREAMSFortiesEkofiskTrollOsebergBrentApr'23Mar'23Feb'23Jan'23Dec'22Nov'22Oct'22Sep'22Aug'22Jul'22Jun'22May'22Apr'220100200300400500600700800Source: Energy Intelligence

Benchmark Boost

As 1.5 million b/d of US crude come to Europe, versus less than 700,000 b/d of core BFOET grades loading every month, the controversial inclusion of WTI Midland crude in the Brent market, due to begin in May 2023, is likely to make waves.

Although the detailed mechanics of the revamped, Brent cash/forward market have not been fully agreed, the industry has reached a consensus on the broad format of the new benchmark, including the necessary freight adjustments to juggle US and European loading terms, as well as quality adjustments for US cargoes.

Beyond the technicalities, the market is concerned that US crude prices may end up affecting a quintessentially seaborne benchmark that hinges on Europe as the main balancing point. Given the dwindling BFOET production volumes, this could prove an issue for the main stakeholders in Europe.

The recent acquisition of Suncor Energy UK by Equinor, including its key 29.89% stake in the Buzzard field that feeds into the Forties blend is a reminder that consolidation and investment in the North Sea remains important. By adding 60,000 b/d of Forties to its equity production, Equinor shows that, as a matter of fact, every barrel counts.

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NORTH SEA LOADING PROGRAM FOR FEBRUARY 2023
Loading(bbl)(b/d)ParcelEquity
Brent
03-05600,00020,000B0401Repsol
15-17600,00020,000B0402Stasco
25-27600,00020,000B0403EnQuest
Forties
01-03600,00020,000F0401Shell
03-05600,00020,000F0402BP
06-08600,00020,000F0403Shell
09-11600,00020,000F0404CNOOC
12-14600,00020,000F0405Eni
15-17600,00020,000F0406Shell
18-20600,00020,000F0407BP
21-23600,00020,000F0408Suncor
24-26600,00020,000F0409Shell
27-29600,00020,000F0410CNOOC
Oseberg
13-15600,00020,00020230401Equinor
21-23600,00020,00020230402ConocoPhillips/ DNO/Equinor
29-01600,00020,00020230403Equinor
Ekofisk
06-08600,00020,000C13117BP
09-11600,00020,000C13114TotalEnergies
12-14600,00020,000C13118BP
14-16600,00020,000C13120Eni
17-19600,00020,000C13122Shell
19-21600,00020,000C13115ConocoPhillips
22-24600,00020,000C13123Shell
24-26600,00020,000C13121Eni
27-29600,00020,000C13119BP
29-01600,00020,000C13116ConocoPhillips
Troll
01-03600,00020,00020230301    Idemitsu/PGiNG/Var
05-07600,00020,00020230302    Equinor
10-12600,00020,00020230303    Equinor
15-17600,00020,00020230304    Wintershall
20-22600,00020,00020230304    ConocoPhillips/ Equinor/Pandion
25-27600,00020,00020230304    Idemitsu/PGiNG
29-01600,00020,00020230306    Equinor
Johan Sverdrup
01-03600,00020,00020230251Equinor
02-04700,00023,33320230256Equinor
03-05700,00023,33320230253Aker BP
04-06600,00020,00020230254Equinor
05-07600,00020,00020230255Equinor
06-08700,00023,33320230330Equinor
07-091,000,00033,33320230331Aker BP
08-10600,00020,00020230332Equinor
09-111,000,00033,33320230333Aker BP
10-12600,00020,00020230334Equinor
11-13700,00023,33320230335Equinor
13-152,000,00066,66720230336TotalEnergies
15-17700,00023,33320230337Aker BP
16-18700,00023,33320230338Equinor
17-19600,00020,00020230339Equinor
18-20700,00023,33320230340Equinor
19-21700,00023,33320230341Equinor
20-221,000,00033,33320230342Aker BP
21-23600,00020,00020230343Equinor
22-24700,00023,33320230344Equinor
23-25700,00023,33320230345Aker BP
25-271,000,00033,33320230346Aker BP
25-27700,00023,33320230347Equinor
27-2960,0002,00020230348Equinor
27-29700,00023,33320230349Equinor
28-30700,00023,33320230350Equinor
29-01700,00023,33320230351Equinor
30-02700,00023,33320230352Aker BP
30-02600,00020,00020230353Equinor
Total BFOET*19,800,000660,00033 cargoes--
Total Johan Sverdrup21,360,000712,00029 cargoes--
Total BFOET Plus Johan Sverdrup23,500,000783,33362 cargoes--

Julien Mathonniere, London