Floating Forties cargoes competing with Urals into Europe

Aframaxes that have been floating in the North Sea after loading Forties crude are expected to compete with Urals into European refineries, sources said.

"There floating cargoes have to place local - relative value to Urals makes Forties cheap," one North Sea trader said.

While Forties is a North Sea grade, it is considered sour by many local refiners and as a result they can look towards the grade as an alternative to Urals.

"Forties econs vs Urals are the closest I've seen in a while," a second North Sea trader said.

A shorter loading program for November combined with strong local demand has helped support Urals differentials recently, though a weakening in fuel oil cracks was a headwind for the grade, according to traders.

"Urals got way too expensive quickly," a European buyer said, noting that some switching from Urals to Forties could be expected.

While slate-switching is not an option for all refiners, there were some oil majors in Northwest Europe who were able to readily adjust their feedstocks to take advantage of better margins when running sweeter crudes versus sour, according to market participants.

"It still makes sense to buy Urals versus North Sea from a normal refinery LP [linear program] model. In general, it is not competitive yet but is heading in that direction," one Urals trader said, referencing software that refineries use to calculate economics.

For its part, S&P Global Platts Analytics calculates that a Northwest European refinery with secondary units such as a fluid catalytic cracker and hydrocracker would see an incentive of around 60 cents/b running Urals over Forties, though this has fallen significantly from over $2/b in mid-October.

According to Platts cFlow trade-flow analytics software, all five Aframaxes that loaded Forties in the last two weeks are currently stationary outside the Forth Estuary.

The North Sea grade had previously been loading on VLCCs, however increased freight rates and wider Brent/Dubai spreads meant that the arbitrage demand waned.

"Chinese demand [is] faltering and the arbitrage is closed," the first trader said.

Looking forwards, however some traders are more bullish about arbitrage demand returning soon.

"The China quotas should encourage some arbitrages given they need the oil before the end of December," a third trader said.

The VLCC Ecoleader was put on subjects Oct. 26 for a journey from Hound Point to Asia on Nov. 3, shipping sources said, while the VLCC Dalma was currently at the Hound Point terminal loading Forties the morning of Oct. 29, cFlow showed.