Light sweet crude oil grades in the North Sea, Mediterranean and West Africa fell to multi-month lows Thursday, driven lower by an abundance of competing grades, despite stable cracks for gasoline and naphtha.
Key light sweet crude grades such as Agbami, Akpo, Ekofisk and Saharan Blend have weakened over the course of the week, with traders reporting that a relative oversupply was causing sellers to discount these grades to clear into refinery homes.
"Refiners are spoilt for choice of alternative cheap grades across the whole spectrum of sour and sweet grades," a trader said Friday.
Light sweet gasoline-rich North Sea grade Ekofisk dipped to a four-month low of Dated Brent minus minus 20 cents/b Thursday as the outlook for the December North Sea trading cycle turned bearish.
"It's very very bearish," a second trader said. "With Azeri trading at Dated Brent plus $1.20/b, Ekofisk will stay low."
In addition to competition from Mediterranean and West African grades, the North Sea December loading program is the highest in over two years, at 54 cargoes or 32.4 million barrels.
The Ekofisk December loading program stands at 17 cargoes, five cargoes longer than November's following the deferral of three cross-month cargoes into December.
The light sweet naphtha-rich Algerian crude Saharan blend also sunk to multi-month lows Thursday despite the grade's broad customer base being in Europe, as competition for refinery homes among light sweet crudes intensified.
"Saharan Blend offers are at Dated Brent plus 50-75 cents," a third trader said. "However, these are high offers, and gasoline cracks are weak, although naphtha is all right."
Saharan Blend was assessed Thursday at Dated Brent plus 45 cents, the lowest level since it was assessed at the same level on September 1. Similar light sweet Nigerian grades Agbami and Akpo were hovering above three-month lows amid an overhang of unsold November cargoes.
This was causing the grade to compete with Agbami and Akpo, with high West African Suezmax freight rates helping to depress differentials on long-haul West African grades.
"There is plenty of crude around in the Mediterranean, so the refiners have lots of options -- it's a buyers' market," the third trader said.
"For grades like Agbami, if Saharan is low, it has to go even lower because of freight."
European gasoline cracks have found support in recent days due to an open arbitrage to the US Atlantic Coast, despite progressive erosion of US RBOB/Brent crack values. EBOB gasoline cracks rose to a five-week high Thursday, with the physical crack to Dated Brent assessed at $12.11/b Thursday, up from $11.92/b Wednesday.
Meanwhile, the December CIF NWE naphtha crack swap recovered this week on healthy demand, tracking gasoline strength, assessed at minus $0.70/b Thursday, up from Monday's minus $1.30/b.
"On the sweet side I don't see much upside even though refinery margins are improved," a fourth trader said.
