Dated Brent boosted by vaccine news, but physical differentials still under pressure

London — Rare positive news amid the coronavirus pandemic pushed crude oil flat prices, including the flat price Dated Brent benchmark, sharply higher Nov. 9, although physical differentials remained stuck in negative territory for some BFOET grades.

S&P Global Platts assessed the Dated Brent benchmark at $41.31/b Nov. 9, up 7.9% or $3.01/b from Nov. 6. This is the highest the benchmark has been assessed at since Oct. 22.

The bullish effect on flat prices came on the back of reports that petrochemical giant Pfizer and BioNTech had recorded a 90% success rate in its phase 3 COVID-19 vaccine trial.

"[Nov. 9] was bullish due to the vaccine," one market participant said. "We were seeing some bank interest as the economy looks more optimistic."

While the Dated Brent benchmark saw flat prices rise, physical differentials remained under pressure as supply length built up in the North Sea amid weak end-user demand.

Around 6 million barrels of Dated Brent basket grades were floating in the North Sea in the week beginning Nov. 2, according to data intelligence firm Kpler.

The Dated Brent differential – which is added to the North Sea strip to give the overall Dated Brent value – has fallen more than 40 cents/b through Q4 so far, reaching a low of minus 67 cents/b Oct. 27, as market participants looked to try to attract interest for floating and upcoming barrels. Platts assessed the Dated Brent differential at minus 52 cents/b Nov. 9.

While WTI Midland has continued to flow into Europe along with West African grades heading into Northern Europe and increasing Libyan crude availabilities, North Sea grades have struggled to find local end-user demand.

"We have a lot of floating BFOET barrels," one trader said, adding that only heavy regional grades were clearing relatively well amid a tight Urals loading program.

With European demand for the Dated Brent basket grades minimal, many market participants have been looking for Chinese demand.

However, with Angolan grades clearing well into China, along with arrivals of Latin American grades and WTI Midland, there has been little room for the North Sea grades such as Forties to compete.

VLCCs that loaded Forties at the Hound Point terminal in October had largely stayed within North Sea ship-to-ship transfer zones with just one VLCC expected to depart Hound Point bound for China at the end of November, according to Platts trade flow software cFlow and Kpler data.

This compares to the four VLCCs and two Suezmaxes of Forties that went to Asia through October-November 2019.

Looking toward the end of 2020, market participants are anticipating fresh 2021 Chinese import quotas while local demand is expected to remain tepid amid the potential of continued European lockdowns.

"With Chinese quotas etc, I think we will likely see a lot of oil naturally point east again soon," a trader said.