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Azeri Light crude oil differentials climb to five-month highs on demand, short program

London — Azeri Light crude differentials have soared over the last two weeks on persistently strong end-user demand and limited cargo availability in August, hitting their highest levels since late February in Wednesday trading.

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On Wednesday, Platts assessed Aframax cargoes of Azeri Light, basis CIF Augusta, at a $2.65/barrel premium to the BTC Dated Strip, their highest level relative to the 13-33 day forward Dated Brent market since February 24.

"It's jumping quite a lot," a trader said.

Trading sources said that while strong margins and an open arbitrage to the US have helped volume to clear easily, the largest impetus behind the upward swing is a significantly shorter August loading program.

Since June 29, differentials in the Azeri Light crude market have climbed $1.20/b, and traders said that some of August cargoes have sold at premiums of more than $2.70/b to Dated Brent.

"If you look at the lifting programs, they are really thin," a trading source said. "The [Azeri Light] lifting program in August lacks 4 million barrels, and there really haven't been cargoes on offer in the market since the end of June."

Average daily loadings of Azeri Light out of the Mediterranean port of Ceyhan -- which sees the bulk of exports each month -- and the Black Sea port of Supsa, are set to average 672,580 b/d, down 64,517 from July. At 575,806 b/d, the Ceyhan program is the shortest for the grade since September 2013, according to Platts records.

The bullish trend in the Mediterranean sweet crude market is not limited to Azeri Light, with differentials for Kazakhstan's more naphtha-rich CPC Blend climbing $0.75/b since late June, and Algeria's Saharan up $0.60/b.

August exports of CPC Blend are also expected to drop on July, in part due to a period of scheduled maintenance at the terminal between August 17 and August 20. Average daily loadings are currently scheduled to drop by 15,927 b/d to 782,730 b/d, their lowest level since October 2014.

"All of the light crudes are a bit bullish because the programs are so much shorter than the previous ones," a crude trader said. "Saharan Blend is also improving, and there hasn't been that big an impact from West Africa, and Libya is still on very, very low volumes."

Crude production in Libya has dropped below 375,000 b/d this week, the head of state-owned NOC said Wednesday, due to technical difficulties at NOC subsidiary Agoco in eastern Libya.

"Libya is dramatically reducing the number of [sweet] barrels available on the market," the second trader added, noting that nominations of sweet crude barrels in August -- the country is primarily exporting them out of Marsa el-Hariga in the East -- were also thinner than in July.


The upward swing in Atlantic Basin sweet crude differentials has not been limited to the Mediterranean, with West African grades also picking up sharply in July.

Since July 1, differentials for Nigeria's flagship Qua Iboe crude have climbed $0.45/b as demand for the remaining August volume has picked up sharply.

On Wednesday, Platts assessed the grade at Dated Brent plus $0.80/b, its highest level since mid-May.

"The market is much stronger [than July] -- it's a very good recovery," said one trader.

Overall, 20-25 million barrels in Nigeria's August program remain unsold, said traders but it is clearing quicker than the previous two months' programs.

A number of grades have seen strong improvements in differentials, particularly Qua Iboe, said traders.

"Qua has been flavor of the month," said one crude trader, adding that it's been a popular grade to offer into tender.

--Paula VanLaningham,
--Gillian Carr,
--Edited by Maurice Geller,