Increased buying interest for North Sea crude oil cargoes, resulting in a sharp increase in price for a number of key grades, has negatively impacted Northwest European refinery margins, according to traders Wednesday. The cracking yield netback margin -- the difference between the Amsterdam-Rotterdam-Antwerp delivered spot price and Northwest European refinery crack yields -- has fallen across the board for Brent, Forties, Oseberg and Ekofisk crude grades, which make up the BFOE Dated Brent benchmark.
"Margins tanked after [Monday's] Dated Brent, before that they were looking average," said one trader. "We'll have to see whether cracks are going to adjust to Dated. But you don't normally see great margins in January, its typical for this time of year. December/January was weak last year. Usually gasoline eases off over the winter and heating oil picks up, but Europe's winter is quite mild this year."
The Forties cracking netback margin has fallen from $0.19/barrel on January 2, to be assessed by Platts at minus $2.19/b Tuesday, as buying interest intensified against a backdrop of high freight costs to import competing crudes into the region.
There have been suggestions by some traders that the rise in prompt Forties cargo values can be attributed to further arbitrage fixtures East. The Almizan Star is currently fixed by Trafigura to ship Forties crude to China, trading sources said. Trafigura declined to comment on the matter. "I believe...a different VLCC from the Almizan Star [has been fixed], loading early February, which is why there's been buying on those dates," said one North Sea trader.
The cracking netback yields of other key grades also fell to monthly lows, with Brent Ninian Blend assessed by Platts at minus $0.86/b Tuesday and Ekofisk dropping to minus $1.12/b. Only Oseberg managed to stay within positive territory at $0.59/b.
Worsening margins for key North Sea grades have also raised questions about the practicality of using other grades from outside the region as alternatives in refineries.
Urals, which has seen a steady slide in crude differentials over recent weeks, was assessed as having a cracking yield netback margin of minus $0.635/b for delivery into ARA, although this negative netback cost has been mostly driven by higher freight costs for Baltic routes.
When asked if people are looking at switching to Urals from Forties, one trader said: "I would think people will be looking, there is over a $2 gap, between the grades so people should be looking at sour more."
