Oil traders scramble for premium crudes as Dated Brent crosses $100/b
17th February 2022 14:31 GMT

As Platts Dated Brent, the bellwether for physical crude, soars over $100/b, oil traders are chasing whatever light, sweet crudes they can get, while betting on whether the staggering backwardation on the crude forward curves will last.

The physical crude markets have shifted to unchartered territory, as demand of prompt oil is soaring supported by uncomfortably low spare capacity, and shrinking oil inventories.

Dated Brent -- used to price more than half of the world's crude -- surged to $100.795/b on Feb. 16, the first time since Sept. 4 2014 that prices have breached the symbolic triple figure mark, Platts data showed.

This comes as geopolitical tensions between Russia and the West over Ukraine coincide with extremely stretched supply and demand fundamentals.

The physical market is so tight, that the Brent crude complex remains in its steepest backwardation on record, nearing $3/b between April and May contracts, according to Platts data.

This backwardation is also reflected very clearly in the difference between the physical and derivatives.

Dated Brent was trading at a premium of $7.295/b to ICE Brent crude futures on Feb. 16, a record-high ever since Platts started assessing this benchmark in the late 1980s.

Depleted oil stocks have fueled a bullish narrative led by a tighter physical oil market, and the Brent crude complex is in its steepest backwardation on record, nearing $3/b between April and May contracts.

“I’ve been doing this 30 years and never seen a market like this one,” said a North Sea crude trader. “Dated Brent has been very strong but it seems we are seeing chinks at last – margins, high flat price, shall they wait for Iranian barrels etc."

Traders expect the frenzy in the North Sea market to plateau soon as more flows of sweet crude from the US, West Africa, and the Mediterranean come to northwest Europe.

 

Pushed to the limit

 

S&P Global Platts Analytics said that oil markets are being “pushed to the limit”, as a “perfect storm” brews for Dated Brent due to “extreme backwardation.”

“There is a strong desire to secure prompt supplies, even if expensive. And with concerns of a drawn out conflict, a desire to pull money out of equities and into commodities, and not to mention as a hedge against growing inflation concerns, oil has been driven higher,” it said in a note.

Geopolitical risk over a potential Russian invasion of Ukraine are also propelling futures crude prices as a conflict could disrupt some 250,000 b/d of oil flows through Ukraine via the southern Druzhba pipeline and even US imports of Russian oil at 450,000-500,000 b/d of crude, feedstock, and products.

Platts Analytics expects Dated Brent to average $97/b and $92/b in February and March respectively. “It estimates oil is pricing in a $20/b risk premium, which is not unjustifiable given how vulnerable oil markets are, but seems lofty, in our view,” it added.

"More concerning, though, is that the risk of potential financial sanctions could create dislocations and hesitancy among buyers of Russian oil, which would leave markets feeling tighter than they already are. This is already being seen in relatively weaker pricing for Russian crude compare to North Sea grades. That is part of the drive behind the strength in Dated Brent relative to ICE," Platts Analytics said.

Traders are also keeping an eye on the nuclear deal negotiations between Iran and the West.

 


Platts ,
17th February 2022 14:31 GMT