The favorable position of the North Sea crude oil market in current arbitrage trade is bolstering cargo differentials, preventing them from slipping to much weaker levels despite a small decrease in values this week.
A closed arbitrage to Europe from the US Gulf Coast and an open one from Europe to Asia, is keeping the market for delivered North Sea grades supported.
This week, cargo differentials and the Brent paper CFD market traded lower, but given the arbitrage conditions, traders are expecting the correction to be minimal.
Cargo liquidity and bidding interest in the Platts Market on Close assessment process have softened significantly, yet values are little changed.
Cargoes of Forties basis FOB have traded at 90-100 cents/b premiums for over a week, S&P Global Platts data showed.
"Freight has gone out of control for Aframax crude fixtures between the US Gulf Coast and Europe," a trader said, adding that because of this factor he was pegging arrivals into Europe during the second half of December at between 6 million-7 million barrels less than than current levels.
The arbitrage was described as being "slammed shut" between the two regions.
Fewer arrivals is a bullish signal in terms of price potential in the context of stable demand and lower supply.
High tanker freight rates were advantageous to those trading European crude on a delivered basis, although burdensome to end-users.
Far from being within an acceptable price range for local refiners, softer structure, lower flat prices and a narrower premium of Dated Brent to Dubai swaps were keeping the Asian window open.
Forties was heard traded on a delivered basis to Asia at a $4/b premium to Dubai crude.
Meanwhile ESPO, a proxy used to interpret strength in the crude markets east of Suez was heard trading at $4.50/b to Dubai, basis FOB.
The combination of the closed arbitrage to Europe from the US and an open one from Europe to Asia can, to a certain extent, explain why North Sea had been volatile in previous weeks while other comparable sweet markets, also popular in arb plays, weakened.
