Cushing rally sees WTI export arbs weaken, with US domestic issues at play

A hefty rally in Nymex WTI last week saw WTI landed values abroad rise and was passed on to some degree into the Brent complex for the time being.

Nymex WTI timespreads rocketed higher last week, largely on US domestic issues, including strong consecutive draws in commercial crude stocks, intensifying wildfire risks to Canadian production, and reports of some tightness in on-spec WTI barrels at Cushing.

DFLs rallied last week. (Sparta Live Curves)

This has seen WTI landed values into Europe rise relative to BFOET and helped to bid up prompt CFDs & DFLs. All else equal, this would likely limit physical flows to Europe, though reports still suggest that European demand had anyway been poor for marginal light sweets.

WTI flows to Europe appear to be under substantial pressure over the last few weeks, with marginal WTI rather moving to Asia instead, despite the fact that WTI continues to land at substantial premiums to Murban in the Far East.

TD25 has gradually gained a little ground over the last few days, but may well begin to correct lower from here. As long as the inland US issues above remain in play, one could presume that WTI may need to continue pricing to stay local, supporting also the Brent complex.

WTI to NWE on an Afra has gained ground on Forties. (Sparta Global ARBS – ARBs Comparison)

BFOET FOB premia have actually been allowed to soften somewhat, with Forties down $0.50/bbl w-o-w. Johan Sverdrup premia have also shifted lower, now down some $0.70/bbl month to date.

That has opened up some interesting opportunities with JS landed values into the USAC diverging from Bonny Light and Liza for example (see chart).

However, on the whole, North Sea arb options remain limited with Forties landing at massive premiums to Murban in Asia. Some cooling in WTI timespreads could thus help to trigger further weakness in the North Sea itself.   

JS is landing substantially cheaper than Bonny Light or Liza. (Sparta Global ARBS – ARBs Comparison)

In the Med, North Sea & WAF grades also look relatively expensive, particularly the latter after last week saw Nigerian diffs shift higher.

What has also changed is the relative positioning of Murban for example, which is landing by now relatively cheaply (albeit via the Suez route), and has even made up ground on WTI. UAE crude into the Med was a relatively frequent – if small – trade last year, but dropped off for the most part in Q2.

Murban landed values have become relatively cheaper. (Sparta Global ARBS – ARBs Comparison)

On WAF, stronger Nigerian diffs have pushed most simple margins further into the red, with the exception of the USAC on some grades. WAF trade to Asia is likely to come under further pressure on these moves, together with an EFS that rallied into the back end of last week.

Chinese buying of WAF and broader North Sea/Atlantic Basin still appears to be limited, likely meaning Atlantic Basin strength should remain ultimately capped.

This general weakness looks to be visible in TD20, which has been rangebound over the last week despite a significant drop in vessel availability.

WAF simple margins remain well in the red for the most part. (Sparta Global ARBS – ARBs Comparison)

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