US condensate and now unrestricted light sweet crude exports could find a marketplace in Europe as refiners eye attractive gasoline and naphtha cracks, sources said Friday.
Light end cracks are extremely high for the time of the year, supported by an increase in demand for gasoline, as low prices have stimulated consumption.
The physical Eurobob gasoline crack -- the premium for FOB NWE EBOB gasoline barges to Dated Brent crude -- was assessed at $13.71/barrel Thursday, compared with $14.74/b on Wednesday. On January 7, 2015, the physical Eurobob gasoline crack was assessed at $4.67/b.
"Gasoline cracks are still very strong for the season. This is the only product that justifies the refinery's operation," said a trading source.
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"It seems that gasoline is in demand all over. Prices at the pump are very low and people are driving. Motorways all over Europe are packed with cars," said another source.
The naphtha complex also continues to see support as a result of gasoline's strength. On Thursday, the January CIF NWE crack swap was assessed at $5.53/barrel, compared with $5.91/b on Wednesday. On January 7, 2015, the CIF NWE crack swap was assessed at minus $8.62/b.
Although light-end cracks may be seen to be high enough to encourage trans-Atlantic crude cargoes, the current differential between the front-month NYMEX WTI and the ICE Brent futures is not wide enough to justify such shipments.
Traders will wait until the outright prices and differential justify the economics, sources said.
The front-month February WTI/Brent futures spread traded Friday at minus 61 cents/b at 1200 GMT.
At the current WTI-Brent differential and Light Louisiana Sweet-WTI differential "it is nowhere near workable," a trader said.
"I think there is a good chance when the differential allows," another trader said.
The US could become a relevant supplier to the European system once the WTI-Brent differential falls to a steady discount.
US EAGLE FORD CRUDE HEADS TO EUROPE FOR FIRST TIME
This week the market found out about the first two cargoes of unrestricted US Eagle Ford crude loading, with Vitol the buyer of both. The two are both set to head to Europe.
The Theo T, carrying as much as 350,000 barrels, may be heading to Italy, according to some sources, and the Angelica Schulte, with another 600,000 barrels, which is currently at Enterprise Products Partners' Enterprise Hydrocarbon Terminal (EHT) loading crude, is understood to be heading to Lavera in the south of France.
Some traders in Europe were surprised that Vitol would bring in US cargoes at the current WTI/Brent differential level, and no traders had heard whether the cargoes had been offered in the market or re-sold.
"One of the options is to take it into their own system," a trader said, pointing to the possibility that Vitol would run the crude at its 68,000 b/d Cressier refinery in Switzerland. "I don't think the cargoes have been sold yet. I think they will be testing the market and offering it," the source added.
If Vitol uses the second cargo at its own refinery, then the tanker could be discharged at Lavera and move to the refinery through the South European Pipeline (SPSE).
A source said the Theo T may be going to Saras' 300,000 b/d Sarroch refinery in Sardinia. "Saras uses that Algerian condensate to blend down the heavy stuff they receive from West Africa," one trader said.
A major Italian refiner said he had not taken a cargo and was surprised that someone would. Another trader in Italy said he had not seen the vessels being offered into the market.
One Mediterranean crude trading source said the cargo could possibly end up in the Amsterdam-Rotterdam-Antwerp market because there are few sweet cargoes in Northwest Europe and there is more competition for sweet grades in the Mediterranean than in Northwest Europe.
Plenty of West African grades are available for February delivery and are being priced at a discount to Dated Brent, sources said.
That said, premiums for light sweet grades in the Mediterranean and Black Sea region remain attractive and sources said the market has the potential to become bullish.
On Thursday, Azeri Light was assessed at Dated Brent plus $1.70/b. The latest reports for Azeri Light say its January program is now fully sold and several February cargoes were said to have cleared to the Far East. Market sentiment is strong for light sweet grades in the Mediterranean, sources say.
According to cFlow, Platts trade flow software, around 3 million barrels of crude and condensate -- most of it the latter -- have loaded in the US Gulf Coast region since December 25 and are heading to Europe, including the latest Vitol cargoes.
One time-charter Statoil tanker, the Seaqueen, was seen heading to Rotterdam with as much as 600,000 barrels loaded. Four other tankers were seen heading to the Mediterranean.
The Jill Jacob is heading to Gibraltar with around 450,000 barrels aboard, while the Minerva Gloria is set to arrive in Cartagena, Spain, with another 550,000 barrels aboard. The Helga Spirit was seen moving around 600,000 barrels to Savona in Italy, while the Aliakmon is going to Marsaxlokk port in Malta with around 400,000 barrels on board, cFlow data show.
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