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Urals differentials to Dated Brent soar on tighter supply

Increase font size  Decrease font size Date:2014-07-31   Views:454
The European Urals market has gained traction over the last several weeks as the tighter-than-expected export program for August has added support to the market.

On Monday, CIF Augusta Urals cargoes were assessed at a $0.34/barrel discount to the Mediterranean Dated Strip, the narrowest the discount has been since early April.

In the Platts Market on Close assessment process, a Litasco bid for an 80,000 mt Urals cargo, ex-Novorossiisk, loading August 8-12 CIF basis Augusta was left outstanding at the 4:30 pm London close at Dated Brent minus $0.30/b.

Differentials for CIF Mediterranean Urals cargoes have climbed more than $1/b in under three weeks.

CIF Rotterdam Urals cargoes also climbed Monday, gaining $0.25 from Friday to be assessed at a $1.30/b discount to the Mediterranean Dated Strip, also the highest against the Dated Brent market since early April.

The Northwest European market has climbed rapidly after sliding to a more than 26-month low on a differential basis in late June.

Market sources said that while demand for Urals has picked up at the prompt as refinery margins for sour crudes have moved higher, the biggest change in the market is due to the unexpectedly tight August Urals loading program.

According to Platts data, the August loading schedule is expected to be the smallest in more than two and a half years, with exports out of both the Baltic Sea port of Primorsk and Black Sea port of Novorossiisk some of the lowest on record.

Total export volumes are set to come in at 7.126 million mt (51,520,980 barrels) with average daily loadings of 1,661,967 b/d out of the three ports, down by 150,197 b/d from July.

Additionally, there is little in the way of sour alternative available in the region to counteract the lack of Urals, traders said, with the continued absence of Kirkuk from Iraq, fewer scheduled exports from Iraq's Southern Basrah field, and little in the way of prompt incoming arbitrage after weeks of low differentials.

The rise in the broader Urals market has coincided with a sharp fall in Aframax freight rates, which has prompted FOB Urals differentials to climb even more rapidly.

Platts assesses FOB Primorsk cargoes as a freight netback to the CIF-delivered Rotterdam Urals market, using the Baltic-UKC freight route to calculate Urals value back to its pipeline source.

On Monday, FOB Primorsk Aframax Urals cargoes were assessed at a $2.655/b discount to the Mediterranean Dated strip, up from a $4.40/b discount on July 22.

Worldscale rates along the Baltic-UK Continent route, basis 100,000 mt have fallen nearly 100 Worldscale points since peaking at w185 on July 22.

It has been a volatile period for Aframax freight rates on the route, with major fluctuations occurring in the past two weeks. An extremely limited position list for end-July loading dates first sent rates up from w95 on July 15 to w185 on July 22.

As charterers moved into the first 10 days of August fixing window, the list of available ships grew substantially longer, with rates falling to a w95 assessment on Monday as a result.

Last week's high freight are extremely rare in a Baltic Aframax market where typically the largest spikes occur in the winter ice season.

"The owners will be happy to have made huge quantities of cash the last couple of weeks. The rates we've seen have been winter numbers," said a shipbroker. "There are plenty of available ships in the Baltic, the owners did well to keep rates high for as long as they did," added the broker.

Rates on the route are currently being pegged lower again on Tuesday by shipping sources after ST Shipping were heard to have put a ship on subjects at w90 for an Ust Luga-UKC run loading August 5.
 
 
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