Dated-related crudes remain strong despite small week-on-week softening, while WTI the most attractive WoS grade in the East as wide EFS makes moving grades East tricky
Oil prices continued to fall through the last week, with soft demand still weighing on markets despite crude markets maintaining solid backwardation at levels which have come off slightly last week, but remain at early-July levels.
Any thoughts of a short-term return of Venezuelan supply to the un-sanctioned market appeared to dissipate overnight, with indications pointing to a continuation of the Maduro government there amid claims of election fraud that are unlikely to signal any course change in US foreign policy there.
North Sea markets have been softening gradually in recent weeks, with DFLs and Brent spreads moving back below the $1/bbl mark and the August contract in particular losing much of its strength.
The DFL remains at the top end of the historical (excl. 2022) seasonal range, however, despite its recent softening to remind us that North Sea balances are clearly not overly long at the minute.
In terms of specific grades, although the lighter North Sea grades continue to price strongly, Johan Sverdrup in particular appears to pricing attractively into export markets both in the East and West.
Into the East, the wide (Friday’s settle was >$2/bbl but open today is back below that threshold) Brent/Dubai EFS continues to make it more difficult to place North Sea and WAF barrels into the East.
Whilst September TI/Brent spreads have narrowed slightly further in recent weeks, the October spread has widened on expectations that the US balance should lengthen once again and supply in Cushing especially should see greater volumes post the summer peak of US refining.
Even for September-loading, WTI looks to be the most attractive WoS barrel into the East, with a continually falling prompt FOB premia helping to give the impression that there remains plenty of availability for waterborne WTI in the prompt.
By contrast, demand for WAF grades has combined with a robust Brent complex to push WAF spot FOB premia higher through the month of May.
WAF grades had a period of high competitiveness in early-July where we could see through our platform that many WAF grades were topping our rankings into the USGC as well as WCI, with options to move either way.
The uptick in FOB premia and a widening of the Brent/Dubai EFS since then has weakened that position now, however, and sellers likely will have to adjust their asking prices before too long.
Finally, looking into the Med where recent reports see a repeat of last year’s hot weather-related disruption, the ranking of baseline crudes into the region continues to see a strong preference for Iraqi-origin crudes, with KEBCO and CPC also pricing attractively into the region vs either Saudi or North Sea/WAF grades.
In case utilisation rates remain lower for longer across the region, we would expect to see increasing volumes of Black Sea and Iraqi crudes being made available to buyers outside of the region going forward.
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