Q+A-What's going on in the North Sea oil market?
LONDON Jan 19 (Reuters) - One trading company has taken control of almost a third of one of the key North Sea crude oil production streams for February when the North Sea oil benchmark has moved to a big premium over its U.S. counterpart.
Hetco, an independent trading company partly owned by and backed by integrated U.S. oil and gas company Hess Corp. (HES.N: Quote) is holding the first eight Forties cargoes loading in February and two of the first Brent cargoes, trading sources say.
Below are some questions and answers on what is behind this move in the North Sea crude oil market, described by dealers at other companies as a "trading play."
Hetco officials contacted by Reuters have declined to discuss their trading strategy.
HOW DOES THE NORTH SEA CRUDE OIL MARKET WORK?
* North Sea oil production has peaked but is still running at almost 4 million barrels per day (bpd), with over 3.5 million bpd from Britain and Norway, which produce the main grades.
* North Sea crude oil is priced by overlapping markets: the buying and selling of real crude oil cargoes, trading in forward "paper" crude oil barrels before they are produced, a regulated crude futures market traded on the Intercontinental Exchange (ICE) (ICE.N: Quote), and several derivatives spread, swap and options markets based on differentials between these markets.
* The most liquid end of the North Sea market is ICE Brent futures LCOc1, which on Jan. 18 saw around 500 million barrels traded, equivalent to about six times daily world consumption.
Brent futures trade up to a decade forward and as financial instruments for all months except for the most prompt, which settles before expiry either through cash, or delivery of a physical cargo.
This settlement of the expiring nearby contract is based on the price of an underlying physical benchmark, known as "dated Brent" or dated BFOE.
* BFOE is a mix of four North Sea crudes -- Brent BRT-, Forties FOT-E, Oseberg OSE-E and Ekofisk EKO-E -- whose volumes, like the total volumes from the North Sea, are gradually dwindling.
This month, around 1.11 million bpd of the four grades will be produced, down from around about 1.45 million bpd two years ago.
* The four BFOE grades are traded speculatively as paper Brent in forward contracts based on months in what is known as the "21-day Brent" market until the underlying oil they represent is nearing production.
Twenty one days before the crude oil is due to be loaded onto an oil tanker, the paper cargoes become physical rather than notional because they are assigned real dates for ships to fill up from North Sea output loading pipelines.
* Various speculative derivative spread markets are traded between the physical, paper and futures markets, allowing oil companies to exchange positions at differentials and these markets also attract their own dedicated traders. Two key markets are:
- Exchange For Physical (EFP): difference between the value of a futures contract and a 21-day paper contract for a particular month
- Contract For Difference (CFD): spreads between physical cargoes in a specific delivery week and a forward paper month
WHAT HAS HAPPENED AND WHY?
* Hetco has declined to discuss its trading strategy. Traders say they appear to have benefited from building up long positions in paper that appreciated significantly in value ahead of the expiry of ICE Brent futures for February. They also hold valuable physical crude oil positions.
* Through a series of trades, probably over several months, Hetco has built up a holding of 10 February Forties and Brent cargoes, each of which contain around 600,000 barrels and at current prices are each worth almost $60 million.
* As of Jan. 18 Hetco controlled around 30 percent of the Forties and Brent programme for February -- eight of the 25 February Forties cargoes, traders said, as well as two of the eight Brent cargoes loading next month.
* Traders say these positions were built up through the outright purchase of 21-day Brent positions for February before they became physical cargoes.
* Hetco also took significant positions in the crude paper spread market, trading the differential between February and March, dealers say, and held long positions in February paper, which other parties with short February positions had to buy before February expired.
* Last Friday, as the ICE Brent contract for February went off the board, the spread between February and March paper crude widened sharply, and the spread between the expiring February futures contract and the next month, March, widened to $1.12 per barrel, its highest for at least 17 months LCO-1=R.
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For a graphic of the spread between the first and second futures months for ICE Brent, click:
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* As a holder of long positions in physical and paper Brent, traders say Hetco would have benefited from the widening spread between February and March and may also have held February futures positions.
* As a holder of all the Forties cargoes loading in the first eight days of February, Hetco has been one of the only sellers in a market that has been rising in value.
* The premium for Brent over its U.S. counterpart, NYMEX light, sweet crude futures CLc1 has widened very sharply over the last month and hit a 23-month high of more than $8 per barrel as the February ICE contract expired on Jan. 14. CL-LCO1=R
* Traders say Hetco has probably already found homes for most of its wet February Forties and Brent cargoes and so will not be left holding them once the crude oil is produced in a couple of weeks' time. (Editing by James Jukwey)
NSea Crude-Forties stronger despite weaker refining margins
* Two Forties deals show market slightly stronger
* Refining margins narrow slightly again but still generous
LONDON, June 15 (Reuters) - North Sea Forties crude oil differentials were slightly stronger on Tuesday despite a further erosion of complex refining margins in Europe and U.S. processing centres and higher production in July.
North Sea crude oil output is expected to increase by 19 percent next month as fields return from seasonal maintenance taking production from the nine main streams to 2.066 million barrels per day in July, loading programmes showed this week. [ID:nLDE65D1N2]
FORTIES
* Within the afternoon trading window, Hetco sold Morgan Stanley a Forties for loading July 4-8 at dated BFOE minus 30 cents. Statoil sold Shell a cargo loading June 29-July 1 at dated minus 20 cents. These deals compared with the last reported Forties trade at dated minus 37 cents for a June 25-27 cargo on Friday.
* Outstanding offers in the window included an indication from Shell of a June 26-28 Forties cargo at dated minus 15 cents.
* Separately, Hetco kept a July 6-8 Forties cargo from the chains. This cargo had been an Eni equity cargo.
REFINING MARGINS
* Complex processing margins for Brent in Rotterdam narrowed a little further to around $4.55 per barrel on Tuesday from about $4.80 on Monday, but remained strong by historical standards, according to Reuters models. Over the last year, the average margin has been around $3.20 per barrel.
SWAPS
* Contracts for Differences (CFDs) were as follows:
21-25/6 Sep -156
28-02/7 Sep -146
5-9/7 Sep -131
12-16/7 Sep -114
19-23/7 Sep -100
26-30/7 Sep -86
Seefor details of previous CFD values.
NSea Crude-Forties steady as margins come off highs
* Forties bid equivalent to dated minus 50-60 cents
* Gullfaks platform still "unstable"
* Refining margins come off highs
LONDON, May 26 (Reuters) - Forties crude oil differentials were steady on Wednesday having strengthened in the previous session as refining margins came off highs, traders said.
The costs of shipping crude from the North Sea came down this week, supporting Forties differentials. DFRT-UKC-TA-L DFRT-UKC-TA-S
FORTIES
* In the public trading window, Total bid for a June 13-18 loading cargo up to July BFOE minus $1.25, equivalent to around dated minus 57 cents, traders said.
There were two withdrawn offers, one from Vitol for June 7-9 loading at dated minus 40 cents and the other from Shell for June 6-8 dates at dated minus 45 cents.
Total's bid on Wednesday was steady from the last known deal on Tuesday when Morgan Stanley bought a June 5-7 cargo from Vitol at dated minus 50 cents and Vitol bought a June 7-9 cargo from Hetco at dated minus 60 cents, traders said.
NORWEGIAN CRUDE
* Norwegian state-run oil company StatoilHydro said it was indicating no cargoes on Wednesday.
* Statoil said the problematic well that shut the North Sea Gullfaks C platform still had "unstable" pressure and that it was still unknown when the platform would resume operations. [ID:nLDE64O1ZY]
Statoil said on Friday it had evacuated and shut the Gullfaks C platform in the North Sea after changes in well pressure led to a fault on one of two valves designed to prevent a blowout. [ID:nLDE64K06F]
REFINING MARGINS
* Complex margins for Brent in Rotterdam eased to around $4.70 per barrel on Wednesday, down from around $7.00 a barrel on Tuesday and from an average of the last 5 days of $6.30.
SWAPS
* Contracts for Differences (CFDs) strengthened at the front of the curve on Wednesday:
1-4/6 Jul -99
7-11/6 Jul -84
14-18/6 Jul -68
21-25/6 Jul -52
28-02/7 Jul -36
5-9/7 Jul -20
Seefor details of previous CFD values.
For a database of oil supply and demand fundamentals upstream and downstream, Reuters subscribers can click here (Reporting by Joe Brock; editing by Anthony Barker)
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http://uk.reuters.com/article/idUKLDE60B2FU20100112 - Tue Jan 12, 2010 6:56pm GMT
Europe Distillates/Fuel Oil-Cold snap boosts Med diffs
LONDON, Jan 12 (Reuters) - Gas oil cargo differentials in the Mediterranean rose against the new February gas oil contract as unseasonably cold weather boosted buying."Whenever a cold snap hits they have to come out and buy in the spot market. It is not unusual but it is definitely supportive for the market," said a trader.Greek Hellenic Petroleum has issued a tender to buy a 30,000 tonne cargo of gas oil with 0.1 percent sulphur for delivery by late January, traders said. [ID:nLDE60B2BU]In the north, an unusually high physical gas oil delivery of 483,000 tonnes -- the highest in at least a year -- weighed on barge differentials. [ID:nLDE60B1ZY]GAS OIL* Barges of gas oil with 0.1 percent sulphur traded at discounts of between $7-$9 compared to February futures on ICE compare with flat and slightly positive differentials to January on Monday.* Hetco was a seller and BP, Shell and Mercuria were buyers.* Temperatures in Europe are set to remain below seasonal norms for the next ten days, according to Meteorlogix.* In the Mediterranean, cargoes were discussed at around premiums of around $10 to ICE gas oil futures compared with between $4/$14 the previous day.ICE GAS OIL* February ICE gas oil futures fell $14.75 to $649.25 a tonne by 1824 GMT as losses across the oil complex weighed.* The January contract expired at 1200 GMT at a closing price of $653.75 a tonne.* Prompt gas oil's crack to Brent futures was $8.22 a barrel, slightly lower than the previous close of $8.39 a barrel.* The new February/March contango was $5.75 a tonne.* One trader said that at these levels floating storage volumes were likely to remain stable. "Some came out of floating storage last week but not much...I don't think there is enough pull now to do that," he said.* Ship broker ICAP estimates that there is 89.4 million barrels of oil products in floating storage globally.ARBITRAGE* The European gas oil arbitrage to the east coast of the United States has shut due to weaker demand in the heating oil demand hub. [ID:nLDE60B24R]DIESEL* Barges of 10ppm were unchanged and traded at premiums of between $3.50 and $6 a tonne fob ARA to February ICE futures.JET FUEL* Two jet fuel barges changed hands at premiums of $43 and $44 a tonne fob ARA to ICE futures. KLM and Lufthansa were the sellers.* A cargoes traded at February plus $48 a tonne cif NWE.FUEL OIL* Barges of high sulphur fuel oil (HSFO) with 3.5 percent sulphur edged lower to trade at $463-$466 a tonne fob ARA.* On a crack basis, HSFO fell to minus $5.83 a barrel.
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