Physical North Sea crude lowest versus paper in months on weak demand

London (Platts)--17 Mar 2014 956 am EDT/1356 GMT

Dated Frontline swaps, which settle on the spread between physical Dated Brent and the calendar-month swap version of ICE Brent futures, are at their lowest in months for some maturities, Platts data showed Monday, as physical differentials come off in the face of low European refinery run rates.

The month-two DFL fell three cents to minus $0.06/b Friday, its lowest since December 17, while the month-one DFL fell three cents to minus $0.10/b, its lowest in three weeks. Further out, the year-three DFL swap was at $0.05/b as Friday, from $0.30/b on January 2.

There was no liquidity on the month-one (April) and month-two (May) contract Monday morning, with Q2 2014 DFL trading at minus $0.04/b from minus $0.02/b Friday.

"Margins have been pretty bad recently," a northwest European refiner said. "There was a bit of an increase, but it never looked sustainable. Unless we see a fundamental change, what is the point in upping runs."

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The North Sea crude market has also come under pressure from the lack of arbitrage opportunities east, hampered by Asian refinery maintenance, especially in South Korea, the key export destination for Forties crude.

Dated Brent has fallen steadily in the past week, with traders citing weaker than expected Chinese industrial data eroding futures prices and physical Forties differentials coming off in the face of increasing European refinery maintenance.

--Ned Molloy,
--Eklavya Gupte,
--Edited by Dan Lalor,

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