Crude
Market Overview
On the back of the Saudi E/W pipeline attack, NWE refiners have been scrambling for nearby replacements - Norwegian Johan Sverdrup has jumped sharply in response.
Assuming that full pipeline restoration takes time, any short term incremental Saudi supply will be prioritised for Asia.
As a result, we should expect FOB diffs for grades with strong refinery margins to appreciate, especially when comparing against expensive landed values for Johan Sverdrup.
Mars, Guyanese crudes and Nigeria’s Egina are prime candidates from the medium-sweet/sour pool, given the size of exports and now relatively cheap NWE landed values.
Our bullish stance for Brent linked crudes (North Sea, WAF) combined with the prospect of a US diesel export ban is a setup for weaker WTI/Brent.
If the ban is imposed, it will likely curb US runs, and free up incremental crude exports. This will also come at a time where Asian refiners will be less tight (but still tight) on supply as Saudi exports gradually return.
Meanwhile European refiners, faced with the ban, will seek to squeeze out every diesel barrel from their kit, i.e. optimize crude to Medium/Heavy grades, potentially at the expense of lighter WTI.
A decline in WTI/Brent would be a resumption of the wider downtrend seen since July
Libyan crude exports from Zawiya port have dried up as political unrest sparked the closure of a crude pipeline linking the port to the Sharara oil field. Losses are reported at around 130kbd. The news adds to an already tough situation for Med refiners, historically the biggest lifters from Zawiya.
Expect continued strength in FOB diffs for key regional grades, Azeri Light, BTC Blend, CPC Blend and Kirkuk (via Ceyhan).
Libyan protests have also forced the shut down of a 120kbd refinery, which means extra competition in the Med for diesel cargoes.
