From S&P Global Platts, February 14:
Eyes remain glued on developments in the Russia-Ukraine situation, and how tensions are affecting energy and commodity markets. Prospects for fossil fuels amid nuclear outages in France and Japan are also in focus.
1. Market shuns Russian barrels, while piling into Dated Brent
What's happening? Dated Brent, which reflects North Sea cargoes loading up to 30 days ahead, is firming considerably more than the ICE Brent contract. This is causing an unprecedented backwardation of $5/b between prompt Dated Brent and the ICE nearby contract. After the usual minimization of year-end stocks, refiners in Europe rebuilding a more normal operating stock cushion are preferentially seeking local and/or short-haul grades, with North Sea and Urals being the natural choices. Refining margin strength is also supporting the demand for prompt barrels. The tension between Russia and Ukraine has resulted in hesitancy to commit to Russian barrels for fear of sanctions, which has caused a sharp widening in the Urals discount, even against Forties – a relatively similar grade.
What's next? Depending on the evolution of the Ukraine-Russia situation, such strength on Dated Brent could evaporate if invasion risks are reduced. But it is also possible to see more buying pressure on prompt North Sea, if the situation escalates. Even so, the current state of Dated Brent will attract more US export barrels and possibly more West African barrels, which should help rebalance the market....
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