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.


123

View Full Article

Copyright 2016 Bloomberg News.

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
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.

Related Companies
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Head of Economics & Planning
Expertise: Energy / Commodity Trading|Supply & Distribution|Supply Chain Management
Location: Kapolei, HI
 
Structural Dept. Craft Mgr.
Expertise: Engineering Manager|Marine Engineering|Structural Engineering
Location: Philadelphia, PA
 
Project Manager
Expertise: Project Management
Location: Pasadena, TX
 
search for more jobs

Brent Crude Oil : $49.24/BBL 1.12%
Light Crude Oil : $47.83/BBL 1.65%
Natural Gas : $2.959/MMBtu 0.23%
Updated in last 24 hours