North Sea Forties Hits 2-Year High On Tight Supply -Trade

By Sherry Su Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The differential of North Sea Forties crude soared to a two-year high Tuesday, a level last seen in the oil bull run of early 2008. Tight North Sea supply amid field maintenance has strengthened the market, but it remains to be seen how long this will last given weakening refinery demand and expected higher September output, traders said. Tuesday, Vitol Holding bought one 600,000-barrel cargo for Aug. 11-13 loading from BP PLC at a premium of $1.05 a barrel over Dated Brent, and another cargo for Aug. 13-15 loading from Trafigura at a premium of 85 cents over September BFOE, equivalent to a premium of around $1.06 over Dated Brent, traders said. Tuesday's prices were the highest since March 2008. This has pushed Dated Brent, which is used to price nearly 60% of global physical trades, to a premium of around 85 cents a barrel over the front-month September Brent futures on London's ICE futures exchange. Forties is currently used to set Dated Brent prices. The forward curve of contracts for differences, or CFDs, was also moving upward, with the front-end CFD for Aug. 2-6 assessed at 13 cents above September BFOE, compared with a 2-cent discount Monday, a broker said. Traders mostly attributed the strength in Forties to a sharp decline in August output amid planned maintenance, and many cargo deferrals in the August program. Only 22 standard 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. Meanwhile, at least eight cargoes for August loading were deferred by one to three days due to some production hiccups, further tightening the market. Despite the tightness, the strength in Forties still caught some traders by surprise. "I just don't understand how it is staying so strong," said a trader. Some traders expect Forties to ease slightly in early August before the Forties loading program comes out. Forties output is expected to rise to 663,000 barrels a day in September, according to BP, which operates the Forties Pipeline System. This would be very close to the normal monthly level. Refinery demand has shown signs of weakening, with refining margins narrowing recently. This has dragged down physical prices for some crude grades. Forties "just seems too strong with Urals looking cheap and margins so poor," said the trader. Differentials for other North Sea crude grades have been weakening Tuesday. Statoil offered one cargo of Gullfaks for Aug. 23 loading at $3 above Dated Brent, compared with the offer level of around $4.50 two weeks ago. Urals, Russian sour grade, was offered at a discount of $1.05 to Dated Brent for Aug. 6-10 loading in northwest Europe Tuesday, traders said. -By Sherry Su, Dow Jones Newswires; +44(0)20-7842-9329; sherry.su@dowjones.com (END) Dow Jones Newswires July 27, 2010 14:26 ET (18:26 GMT)