Mediterranean sweet crude differentials to Brent pushed higher on Monday, as shorter October programs, strong margins, and an upswing in demand saw supply in the region tighten further.
Distillate-rich and naphtha-rich barrels in the region have both seen demand rise in recent weeks, as tighter export programs in October and persistently strong refinery margins have prompted a boom in end-user buying interest.
Distillate-rich Azeri Light cargoes, basis CIF Augusta, rose $0.05/barrel to a $2.10/b premium to the BTC Dated Strip, their highest level relative to the 13 to 33 day forward Dated Brent market since late July, according to Platts data.
Naphtha-heavy CPC Blend differentials remained supported Monday, holding steady at a more than nine-month high of plus $0.82/b to the Mediterranean Dated strip on a CIF Augusta basis, while FOB Algeria Saharan cargoes — also naphtha-heavy — gained $0.08/b to a $0.60/b premium to the 13-28 day forward Brent curve.
“For the moment, the light sweets are tight as far as supply is concerned,” a crude trader said. “October, you had maintenance at the Tengiz field, so you are missing three [Tengizchevroil] cargoes in the Azeri program, and CPC Blend [also] had less [volume.]”
Both the final CPC Blend and Azeri Light export programs were shorter in October than in September — the final CPC Blend loading program was actually some 124,413 b/d shorter — which prompted many end-users to scramble for reliable sweet crudes after the October Saharan Blend program sold out faster than anticipated.
Venezuela’s PDVSA has reportedly purchased at least one VLCC worth of Saharan in October — likely to load in the next few days — and is expected to buy a similar volume in November.
“That would be like 10-15% of the whole [Saharan] program, which is significant,” a trading source said.
Traders said the unexpected arbitrage demand from Venezuela — coupled with a more traditional flow of cargoes to the US East Coast as the differential between the ICE Brent and NYMEX crude markets has narrowed — has seen less Saharan available in the Mediterranean, prompting end-users to switch to other grades.
While crude production in Libya is currently averaging some 920,000 b/d according to sources, with most of that sweet crude available for export, the deteriorating political situation in the country remains a source of caution for many refiners.
Libya’s medium-sweet Es Sider was heard pricing at a slight premium to the official selling price of Dated Brent minus $1.10/b on Monday, while its naphtha-rich Sharara — which is similar to Saharan — was heard selling at a small premium to its OSP of minus $0.30/b.
Traders said the ever-widening differential between Libyan crudes and the rest of the Mediterranean sweet market could dampen the rapid rise in differentials moving forward.
“I think people will start looking at alternatives [to CPC and Saharan],” a crude trader said. “The price difference between Libyan and CPC and Saharan is too wide, so people may be more likely to go for Libyan now, despite the risk.”
Programs for Azeri Light and CPC Blend in November are expected to be released later this week.
Platts.com
