Differentials for Azerbaijan's Azeri Light are hovering at more than three-and-a-half year lows as the prolonged overhang of sweet crudes in the Atlantic Basin continues to put pressure on levels in the region.
On Friday, CIF Augusta Azeri Light cargoes were assessed at a $1.80/barrel premium to the Mediterranean Dated Strip, their lowest level relative to the 13-25 forward Dated Brent curve since January 2011, Platts data shows.
In the Platts Market on Close assessment process, Vitol lifted a Socar offer for a 600,000-barrel Azeri Light cargo, ex-Ceyhan, loading August 19-23 CFR basis Augusta at Dated Brent plus $1.70/b.
Traders said the influx of sweet crude from Nigeria into the European market over the last two months has contributed to sharply weaker differentials across the broader sweet complex in the Mediterranean.
"There is a lot of oil around," a trading source said. "West African is being offered at a discounted price...The [Dated Brent] structure being in contango has helped refiners up profitability because it is easier for everyone to buy from ports where the voyage is long. WAF crudes are pricing better than they were three months ago, and premiums are much lower."
More than 25 million barrels of Nigerian crude are thought to still be available between the August and September Nigerian loading programs, with the majority of the crude expected to land in Europe where it has competed with more local sweet barrels in the Mediterranean and from the North Sea.
Azeri Light differentials have plunged $0.70/b in a little more than two weeks.
The grade's September loading program from the Turkish port of Ceyhan -- it's primary export location -- was released late in European trading on Friday, even as sources said several August cargoes are still available for purchase.
Azeri -- which because of its high distillate yield, is generally in demand from end-users, typically trading between 20 and 30 days forward -- has fallen well behind its normal trading cycle over the last several months, prompting differentials to hold increasingly lower levels.
Traders said weakening refinery margins in both Asia and Europe have also contributed to the drop-off in demand for the crude over the last several weeks.
"There is no demand from the East...and West African crudes are still available," a trader said. "Those have corrected more [than Azeri has], and margins in Asia and Europe [are weak]."
