London — North Sea light sweet crude oil grade Forties' premium to Urals has fallen to its lowest since December last year as pricing levels for the medium sour Russian grade have surged by more than 30 cents/b this week on aggressive bidding interest from European buyers looking to replace Iranian barrels.
S&P Global Platts assessed Forties at a $1.22/b premium to Urals FOB Primorsk on Monday, compared with a year-to-date average of $2.79/b, prompting European refiners to consider switching to the lighter, sweeter grade.
Demand for Forties has been largely moribund in August, in part due to a slowdown in demand from Asian buyers ahead of the refinery maintenance season and as refining economics in Europe favored heavier barrels.
"The medium/heavy market is doing well globally I think, certainly in Europe. Margins are good," a trader said.
"But the light market has been suffering, partly because margins are favorable for middle distillates and fuel oil, partly due to oversupply," the trader added.
A string of Forties cargoes has piled up on the water in recent weeks as a contango structure in the BFOE market permitted floating storage. Holding barrels on the water enables cargo holders to delay selling at times of reduced demand in the hope of securing a better price for the oil.
While buying interest was largely absent from the Platts Market on Close assessment process Monday and as offers of floating barrels persisted, some North Sea crude traders anticipate demand for Forties will improve going forward.
"I would expect the market to pick up from the low level it's been trading at now, [although] no fireworks yet," the North Sea trader said.
Some crude traders expect end-users to switch to more distillate-rich crudes like Forties as the heavier ones become relatively pricier.
"Refinery margins are still good, but 60-70 cents/b lower than last week. We are seeing less contango but the market is still in good health," a buyer of Urals said.
The Urals market has been very popular amongst European refiners due to the strength in the bitumen and gasoline cracks and given weak vacuum gasoil differentials to Dated Brent. VGO is an intermediary refinery oil feedstock used to top up secondary processing units and churn cheap heavy oil into valuable refined products.
The Urals market has also found support from US sanctions on Iranian crude coming back in to force on November 4, removing up to 1 million b/d of Iranian exports from the market.
On Monday value for Urals basis CIF Rotterdam was assessed at minus $0.77/b to Dated Brent, its highest since January 30. Last week it was assessed at minus $1.25/b.
Limited availability has also helped lift narrow the differential to Dated Brent.
Sources said that the August barrels have sold out already and the September barrels known to the market are already accounted for, limiting the number of cargoes traders can bid for.
