Falling US crude cuts arb opportunites from N Sea, WAF in Nov: traders

Crude arbitrage routes from West Africa and Europe to the US have come under increased pressure or simply been closed by falling prices across the Atlantic, according to traders.

"Whatever was going to the US, [now] it doesn't need to," said one trader Thursday.

"That has a knock-on effect on Brent-related stuff here. We're seeing it in the North Sea already, and we'll probably see it in WAF as well." However, one trader said: "I would not say the arb is exactly shut, despite the Brent/WTI spread."

The premium of Cash BFOE over Light Louisiana Sweet (both second month) reached its highest within Platts records going back to 2009 Thursday, at $9.76/b, while in futures the Brent/WTI premium reached its widest in seven months Wednesday at $13.45/b, but had fallen back by Friday.

Addison Armstrong, analyst at Tradition Energy, said WTI was "under continuing pressure from high levels of US inventories and production while there is light profit-taking on Brent after the Atlantic arb pushed out to its widest level since April." ARBITRAGE IMPACT

On the East Coast, buyers might still take the occasional North Sea cargo; A BP fixture in October saw some Ekofisk crude move out of the North Sea to Delta's Trainer refinery, Pennsylvania.

But other regions in the US have cheaper options.

"As long as you're in the Gulf or Midwest, you've got all these shale plays on your doorstep," another trader said Thursday.

An arbitrage to South America also appears to work, with two Ekofisk cargoes booked to Chile's ENAP from the UK in recent weeks.

In the second of these, BP put on subjects the 130,000 mt Pink, loading Teesside/Chile on November 8, rate not reported. A trader at the company declined to comment.

The lack of arbitrage opportunities out of Europe comes against a backdrop of weak regional demand due to sustained narrow margins, partly due to unseasonably low gasoline cracks.

Low margins could also be partly attributed to strong exports of distillates from the US, said traders.

"The problem the European refining industry has is that US crude is lot cheaper," said one. "Refiners there run, they have better margins. This leads to overproduction, and export of products."
Source: Platts