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Urals crude oil differentials boom as Shell picks up buying for late May, early June

London (Platts)--15 May 2018 541 am EDT/941 GMT


The Urals crude oil market in Northwest Europe has rebounded sharply over the first half of May, climbing to its highest level versus the forward Dated Brent market since the start of April, amid strong buying interest for late May and early June cargoes.

Platts on Monday assessed Urals CIF basis Rotterdam, ex-Primorsk/Ust-Luga, at a discount of $2.105/b to the Mediterranean Dated Strip, its narrowest level versus the 13-28 day forward Dated Brent market since April 1, according to Platts data.

This is up from the more than six-year low of minus $3.75/b seen May 1.

The surge in Urals differentials has come amid a spate of buying interest for the grade from Northwest European refiners -- most notably Shell -- for cargoes loading in late May and early June, though the provisional June loading program had not yet been released as of publication Tuesday morning.

The company bid for two separate 100,000 mt Urals cargoes CIF basis Rotterdam, ex-Primorsk/Ust-Luga -- one loading May 28-June 1 and another loading June 4-8 -- before being sold at Dated Brent minus $2.05/b by Glencore and minus $1.95/b by Trafigura respectively.

Shell has been active across the third decade of the Urals loading program, bidding four of the last five trading days, even after purchasing 500,00 mt of Urals (400,000 mt in the third decade) on May 3.

Traders said it is still unclear whether the volume is expected to remain in Europe or leave the region.

There has so far been no evidence in the shipping markets of Urals cargoes expected to co-load on VLCCs to China, even as arbitrage flows from the North Sea have rolled forward into the June trading cycle.

Urals differentials tumbled throughout the second half of March and into April as backwardation in the forward Dated Brent market -- spurred by a surge in arbitrage for Forties and Ekofisk -- climbed sharply.

The strength in the prompt market caused the differentials for crudes pricing relative to the forward Dated Brent market to discount heavily in order to clear.

However, while that backwardation has remained pronounced across May, a minor contango has worked its way into June, which has helped to ease some of the pressure on crudes like Urals, traders said.

"The [change in the] Dated structure has helped, and it really has been the most important element, both on the bearish side and now on the improved side," a crude trader said, adding that the upcoming end of refinery maintenance in Europe has also given expectations of forthcoming demand a bit of a boost.

--Paula VanLaningham, paula.vanlaningham@spglobal.com

--Edited by Jonathan Fox, jonathan.fox@spglobal.com




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