This week crude oil prices in the North Sea and West African markets have jumped as reduced supply from both regions compounds the loss of Libyan oil. Levels may remain high for a while yet. North Sea Forties traded at the highest in the year in dated Brent at plus $1.20 a barrel on Thursday, dealers said. Nigeria's biggest crude stream, Qua Iboe, is valued at plus $4.00 or more, up at least a dollar from Tuesday.
"The whole physical market is in a bit of a frenzy in the Atlantic basin," said a London-based crude trader. "It will turn around eventually, but for now it looks like it will stay strong." The increase follows signs of tighter supply from both regions -- further delays in exports of Forties, the crude that usually sets the dated Brent benchmark used around the world, and reduced Nigerian shipments. "Generally, everything is looking tight," said a second trader who works for a European oil company.
Oil traders say the tighter market is supporting the structure of Brent futures. Forties is one of the four crudes that sets dated Brent, used to price up to 70 per cent of the world's crude, including Nigeria's. The spread between the October and November Brent future contracts has widened this week; it was trading at plus 55 per cent on Friday, showing that traders place a premium on prompt supplies.
Oil traders said the increase in values was also being driven by strong demand for crude for immediate delivery. "It's demand driven, and margins are decent," said the trader with the European oil company. In an indication of the potential profit margin from refining Brent crude, companies in Rotterdam can expect to make almost $5 a barrel, more than a dollar more than the past year's average.
The loss of Libyan crude due to the civil war has removed 1.6 million barrels per day (bpd) -- equal to almost three standard-sized Forties cargoes a day -- from the market, affecting Europe in particular. A restart is not expected to be imminent. Libya's rebel government hopes to resume oil exports within two to three months, the official in charge of financial and oil matters told Reuters on Thursday.
Much of Libya's crude is light and sweet -- low in sulphur -- easy to refine and similar in quality to most North Sea and Nigerian oil. Analysts at JBC Energy on Friday said European refiners "are facing a shortage" of light, sweet crude. North Sea output was expected to increase in September after months of delays to shipments, following the end of maintenance at Nexen's Buzzard field and the BP Plc-operated Forties pipeline.
But there were signs this week of Forties supplies remaining unreliable. Three September cargoes have been delayed and one cancelled, trading sources said. On Thursday, Norway's Statoil bought a cargo of Forties from BP at dated plus $1.20 a barrel, oil traders said. That was the highest premium since August 2010, Reuters data showed. The Forties deal was not done in the Platts window, where most physical North Sea trading to set the dated benchmark takes place, traders who monitor the window said.
In the West African market, loading programmes showed that exports of Nigerian crude, including Qua Iboe, will fall for the second month in October, to about 1.85 million bpd. Lending further support to the market, Royal Dutch Shell said on Tuesday it might miss shipments of Nigeria's Bonny Light crude after attacks on pipelines. "There were more reasons for the market to go up than down," said a West African crude trader. "There will be people out there who still need to buy, so it may continue."