2nd UPDATE: N Sea Crude Tightness To Ease On Margins, Output

22nd Jul 2010 15:54

(Updates earliest loading dates for cargoes, Statoil offers.) By Sherry Su Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The North Sea crude oil market remains tight amid lower production but narrowing refining margins and expected higher output in September suggest the tightness will ease very soon, traders said Thursday. Widely watched Forties crude is the tightest in the market, mainly due to lower production and cargo deferrals caused by maintenance works. Only 22 standard 600,000-barrel cargoes are scheduled to load in August, including two deferred from July, compared with the revised volume of 26 cargoes in July, and the normal level of about 30 cargoes. As a result, the Forties differential has been hovering at an 11-month high of about 50 cents a barrel above benchmark Dated Brent over the past few days, compared with a discount of nearly $1 a month ago, traders said. Other grades are also slightly tight, with some free-on-board cargoes having been sold very fast. "We're pretty much sold out to third decade and although differentials have softened they are still pretty good," a trader said. The earliest available loading date is now Aug. 20-22 for Brent, Aug. 17-19 for Ekofisk, Aug. 23-25 for Oseberg, and Aug. 24-26 for Statfjord, the trader said. Statoil ASA (STO) was Thursday offering Troll crude for Aug. 25 loading at a premium of $2.60 over Dated Brent, one August 19 cargo of Asgard at $1.10 over Dated, and another Grane cargo for August 20 loading at a discount of $2.35 to Dated, traders said, adding Statoil still have two Gullfaks cargoes for mid-August loading. But the shortage won't last long, as refinery demand has shown sign of weakening with refining margins narrowing. "It's more a case of people not willing to pay up at the ridiculous high differentials to run their refineries at negative cash margins," a second trader said. "Makes more sense to cut runs than buy crude at these levels." A decline in refinery demand has already dragged down the price of Russian Urals, a substitute for Forties crude. Gunvor Tuesday offered one Urals cargo for July 31-Aug. 4 loading at a discount of $1.75 a barrel to Dated, well below an offer of a high premium of 15 cents earlier this month. Traders expect some refineries to switch to cheaper Urals from more expensive Forties crude if Forties remains firm. Most importantly, crude oil production is expected to come back to normal in September with planned maintenance coming to an end, putting pressure on prices, traders said. Tuesday, Gunvor offered one Urals cargo for July 31-Aug. 4 loading at a discount of $1.75 a barrel to Dated, well below an offer of a high premium of 15 cents earlier this month. Production of Forties crude is expected to rise to 663,000 barrels a day in September, according to the data posted on the website of BP PLC (BP), which operates the Forties Pipeline System. Should it come in as expected, it will represent a big jump from the revised output of 426,000 barrels a day in August. -By Sherry Su, Dow Jones Newswires; +44(0)20-7842-9329; [email protected] (END) Dow Jones Newswires July 22, 2010 10:54 ET (14:54 GMT)