The unplanned outages of crude oil from the North Sea (Buzzard and the Gulfaks B platform) is leading to shortage of crude oil supply in the physical market and the UK’s largest oilfield (Buzzard: 200 thousand b/d) also has already gone offline twice this year. Although relatively a quick to return to operation in both instances is being expected, the outages have reduced North Sea supplies, with six January-loading Forties Blend cargoes delayed so far, according to a report from Barclays Research.

The outage is a reminder of the possibility of the situation that occurred in 2012 and H1 13 recurring when Buzzard, the largest contributor to the Forties Blend (a key component that influences the pricing of the Brent benchmark) was shut down on more than six occasions. This factor was one element that kept prompt Brent time spreads elevated during the year, along with the start of arbitrage flows outside the North Sea, Barclays Research said.

High sulphur levels in Buzzard’s oil output is one of the reasons for these unplanned shut-down. Following extended maintenance, output from the field had been stable from August last year, but with recurring relapses starting to emerge again, the possibility of further outages has increased and it is worth keeping on the radar of supply system risks.

Overall, non-OPEC supply growth stands to exceed demand growth to an even greater extent than in 2013 with support from North America. The market balances do have to face large potential swings in supply this year, with output from Libya, Venezuela, Iraq, Nigeria and Iran being likely problem spots. Out of these, the easing of Iran’s sanctions starting on 20 January is getting the spotlight.

Iran has engaged in proactive efforts to leverage this opportunity (in terms of expectations of higher Iranian exports throughout this year), but several obstacles stand in the way of fulfilment. However,the non-OPEC supply growth and proactive efforts of Iran are to meet the shortage of supply caused by North Sea shut-down and because of arbitrage flow of crude oil the prices are likely to rule steady.
Source: Barclays Research