Battle of Three Oil Benchmarks Upending Crude Flows Across Globe
(Bloomberg) -- The oil tanker Tofteviken is set to sail from the U.K. this month carrying the first shipment of North Sea Ekofisk crude to the U.S. Gulf Coast in five years.
More than 7,000 miles away, the Syros Warrior is due to deliver Siberian oil to the Chinese port of Qingdao, part of a record surge of cargoes that’s helped Russia overtake Angola as the Asian nation’s second-biggest supplier. Back in Texas, a tanker of crude is scheduled to sail for China in what will be one of the first shipments to leave the U.S. after an export ban was lifted.
These journeys illustrate how the global oil market has been upended by the collapse in prices that was triggered in 2014 by the U.S. shale boom. They’re a reflection of the fluctuating relationship between the three global crude benchmarks being buffeted by a glut of supplies from producers determined to keep their taps open.
“Increased volatility in spreads among three benchmarks is eroding the stable relationships buyers used to maintain with sellers,” said Hong Sung Ki, a Seoul-based commodities analyst at Samsung Futures Inc. “Ultimately, this will further intensify the price war among oil producers as they compete against one another to maintain market share. When spreads fluctuate, it often changes the flow of oil trade.”
The cost of crude from around the world is typically linked to the price of regional benchmarks. West African oil, for example, gets its value from North Sea Brent, while supplies from the Middle East are linked to the Dubai grade and U.S. crude to West Texas Intermediate. Changes in the relative value of those benchmarks therefore decide what crude goes where.
The gap between Dubai and Brent prices, reflected in a spread known as the exchange of futures for swaps or EFS, widened to as much as $4.55 a barrel on Jan. 5, making the Middle East grade the cheapest in 1 1/2 years relative to North Sea crude, data from PVM Oil Associates Ltd. show. It was as little as 60 cents in July 2015, the smallest in five years.
Middle East crude is getting cheaper compared with Brent as Iran begins to boost exports after international sanctions against it were removed and the Organization of Petroleum Exporting Countries effectively abandoned its output limits, allowing members such as Iraq and Kuwait to pump as much as they want to defend market share.
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- OPEC's Output Curbs Squeeze World's Biggest Oil Refining Complex (Oct 16)
- India's Reliance Industries 2Q Profit Up 7%, Lags Estimates (Oct 13)
- India's Reliance Sells US Shale Asset for $126 Mln (Oct 06)
Company: Hindustan Petroleum more info
- India Refiner HPCL Sees More Scope For Foreign Buys After ONGC Deal (Jul 20)
- India Approves Creation of State Oil Giant in $4.6 Billion Deal (Jul 19)
- Iraq Undercuts Saudi Arabia In Q2 To Grab Top Spot In India Oil Market (Jul 19)
Company: Unipec more info
- World's Hottest Oil Market Gets A Jolt From China's Taxman (Sep 06)
- Battle of Three Oil Benchmarks Upending Crude Flows Across Globe (Feb 05)
- Chinese Trading Rivalry Ruffles Asian Oil Markets (Aug 20)