2nd UPDATE: Forties May Stay Strong On Urals, Tightness-Trade

(Adds possible supply from West Africa) By Sherry Su Of DOW JONES NEWSWIRES LONDON (Dow Jones)--North Sea Forties crude oil is likely to stay strong in the short term as healthy refinery demand, strong Russian Urals and tighter supply will continue to provide support, traders said Thursday. Forties crude oil has been strengthening over the past few sessions, with its differential largely pegged at slight discounts of 5-10 cents a barrel below benchmark Dated Brent, compared with discounts of 30-50 cents a month ago. Forties' strength, however, wasn't a surprise to the market, as "all grades are strong," said a North Sea crude trader. Traders said a sharp rise in the differential of Russian Urals crude oil, which is typically cheaper than Forties due to inferior quality, has lent strong support to Forties. Wednesday, Glencore bid Urals at a discount of 5 cents a barrel to Dated Brent for July 10-14 loading in North West Europe, compared with a discount of 75 cents for a deal done a week ago. Urals' strength in North West Europe was partly due to a drop of about 100,000 barrels a day in exports from Baltic Sea port Primorsk in July from June. "There is a small decrease in volume of Russian Urals crude being shipped from Primorsk for July, but this is not enough to justify the current rise in prices," said another trader, adding that some of the main players in the market may be short cargoes for mid-July and willing to pay higher prices. Demand from European refineries remains healthy. Although refining margins in Europe have come off slightly recently, they are still strong enough to prompt refineries to maintain high crude runs, traders said. Meanwhile, Forties supply has shown sign of tightening, with bids having outnumbered offers in the physical market over the past few sessions. The tightness is expected to worsen as Forties output will be much lower in August than in July because of planned maintenance. Forties production is expected to be 516,000 barrels a day in August, according to BP, which operates Forties Pipeline System. This will be lower than July production of 561,000 barrels a day and the normal level of around 600,000 barrels a day. But some traders are worried that a decline in quality of Forties crude in early August might put some pressure on the price. "Forties quality will get worse from the start of August with some of the sweeter fields off for maintenance," said a London-based North Sea trader. Forties crude will become heavier and less sweet in early August, as output ratio of oil from its biggest 200,000-barrel-a-day Buzzard field will increase due to less contribution from sweeter fields. Crude oil produced from Buzzard is medium, sour crude. Another negative factor is the potential rise in supply from neighboring markets, traders said. "There appears to be significantly more West African crude headed to Europe in the coming month" due to recent strength in Forties and Russian Urals in North West Europe, said a trader who deals in Urals crude. -By Sherry Su, Dow Jones Newswires; +44(0)20-7842-9329; sherry.su@dowjones.com (Angela Henshall in London contributed to this article) (END) Dow Jones Newswires July 01, 2010 11:28 ET (15:28 GMT)