Sweet North Sea crude values have begun rebounding as European crude oil traders begin to take note of improving sweet refining margins, the first time in over a month that sweet margins have performed better than sour, traders said Monday.
"Margins are steadily creeping back up again. They're not fantastic but I personally don't think there will be run cuts on the back of them," one North Sea crude trader said.
Several European crude traders have noted that improving gasoline and gasoil cracks have bolstered the value of sweet crude slates, while a less than impressive fuel oil crack has failed to support sourer crudes.
"Gasoline has improved over the past few days and fuel oil is slightly down; sweeter crudes typically yield more gasoline than fuel oil," the same crude trader said.
The value of Oseberg crude, a sweet North Sea grade, has risen from a premium of $0.825/barrel to Dated Brent at the beginning of last week to $1.29/b as assessed Friday, Platts data shows.
Sweet crude values had not been performing well since mid-April as light-end and middle distillate cracks failed to perform while fuel oil, which is at the heavier end of the oil product spectrum, was relatively perky.
But that changed last week, as some of the lighter product cracks rebounded and sweet crude differentials started to rise.
North Sea crude traders expect this trend to remain, noting that the value of the sourer Urals crude looked "toppy" compared to the value of lighter crudes and given the relatively weak fuel oil cracks against other lighter-end and distillate cracks.
The trend in the North Sea was echoed in the Mediterranean crude market, traders said.
Mediterranean crude oil traders said sweet crude margins were rising relative to sour grades, particularly on the prompt, following a period of depressed values in the region.
"I think sweet margins are looking much better than sour margins for some grades. CPC Blend, for example, is looking good specifically into NWE. It's definitely true that sweet margins are good in the prompt. Some sweet grades have come off a lot."
CPC Blend was assessed at Dated Brent minus $1.01/barrel Friday, down by a cumulative $2.09/b since the start of the year. This has seen CPC Blend switch from being at a premium of $1.84/b over Urals on February 28 to a discount of $0.99/b Friday.
Traders said this trend could now start to reverse, with sweet grades increasingly attractive relative to sour.
"Looking at the cracks, the incentive to run sweet crude rather than sour is increasing," a trader said Friday. "Refiners should prefer sweet cargoes on the prompt."
