Front-month Brent has once again entered the thin cloud range around $111/bbl. While prices have traded around a $3/bbl range over the week, there was volatile action across the forward curve. In particular, the front-month Brent time differential (April – May) rose above $1/bbl on a series of planned and unplanned supply issues reported in the North Sea, only to recede by the end of the week on supply normalisation and a rich BFOE loading programme for April.
Among the developments in the North Sea this week: Buzzard went into a four-day maintenance earlier than expected, but came back online in line with the timetable. The outage did partially support front-month differentials above the 90 cent mark. In fact, one of the reasons the spread has been well supported is that Buzzard had an outage (11-17 February) that brought loadings from 160 thousand b/d to 80 thousand b/d. Its operator, Nexen, tried to restore volumes but was only able to restore slightly more than 100 thousand b/d as of 20 February.
As a result of the leak discovered on the Cormorant Alpha platform over the weekend, the Brent crude pipeline system was shut for five days starting 2 March. The pipeline normally carries 90 thousand b/d of oil; 10 thousand b/d was already offline following a similar incident on 14 January. The return of this pipeline system on Thursday has helped compress the time differential further.
Additionally, loading programmes released this week for the North Sea Brent, Forties, Oseberg and Ekofisk crudes indicated that supply will increase by 8% in April compared with March loadings. While the April loading programme is rich due to deferred cargoes from March, steady supplies from key fields are also expected to lend support.
In particular, we highlight that the Buzzard field being back online and the Total-Elgin field restarting this Friday will help support supply. The narrowing of the front-month Brent time spread is in line with Barclays view.
In addition to the ongoing uncertainty regarding Iran’s nuclear situation, a variety of potentially market-moving events are developing across the world, some more serious than others, though all worthy of close monitoring by market participants. We detail the most prominent situations below.
In Iraq, a refined products pipeline in the north of the country that has been subject to repeated attacks in the past few months was sabotaged once again. At the moment, it appears that trucks are carrying the oil products; thus, markets are unlikely to feel the pinch to a measurable degree as the pipeline does not transport products for export.
Almost 50 wounded Syrian soldiers were ambushed and killed in Iraq on the way to the Syrian border. While these two events in Iraq have yet to destabilise flows noticeably, they do highlight the prevailing dangers of conducting business in the oil-rich nation and cast doubt on the country’s ability to produce growth in production.
As evidenced by the above news, Syrian violence is escalating as the military continues to press on rebels aggressively and intensify efforts in Homs, the country’s third-largest city. Yemen, also no stranger to attacks compromising oil infrastructure, has seen yet another pipeline being targeted by rebels. The pipeline usually carries oil from a province in the east to the country’s west coast, though it is unclear whether flows were affected negatively. If the attack was anything like those recently suffered by the country’s main pipeline, Marib, it is likely that at least some supplies may have been disrupted.
The strained relations in the Korean peninsula are heightening as the South has warned of “strong and resolute” military action against the unpredictable DPRK after it recently threatened to declare invalid the moderately successful armistice agreement that in 1953 led to the ceasefire between the two nations.
A new wave of violence between Egyptian police and protesters is emerging in Port Said, the northern terminus of the Suez Canal. Increased violence and clashes in the area could threaten canal operations, as the canal is an important transport artery for the global crude trade, allowing transit between Asia and Europe without a long and costly route around southern Africa. Any disruptions could be widespread in the oil markets.
While clearly severe, these events have yet to affect oil prices in a significant manner as the markets are still digesting the events or are waiting to see how they unfold. Some of the above events are currently in their infancy, yet have the potential to become more prominent headlines or even adversely affect oil supplies in their radius.
Source: Barclays