A rare flurry of Angolan crude cargoes being offered for sale in the Platts trading window this week has seen the price differentials for key grades falling, another sign of weakness in the physical crude market.
Most West African crude trading takes place in term contracts or bilateral deals and it is relatively rare for companies to trade cargoes in the Platts window, a service run by oil-index publisher S&P Global Commodity Insights.
But on Monday, Exxon offered three December-loading cargoes including a Dalia at dated Brent parity, a Kissanje at dated plus 80 cents and a Hungo at dated parity, without selling any of them in the window, according to trade sources.
On Tuesday, Unipec offered Dalia at dated Brent minus 60 cents, below Exxon’s offer, and Exxon trimmed its offers for Kissanje and Hungo.
Before this week, the last time an Angolan cargo was offered in this way was in May, based on information from trade sources, when BP offered a cargo of Girassol crude lower than the price of earlier deals.
Traders say companies tend to use the window when there is a wide gap between bids and offers in an effort to close the chasm.
James Davis, director for Short Term Oil at FGE, said the market was always looking tight for October, and to some extent November and December too, but the market is now focusing on the first quarter, where balances are looking fairly sloppy and spreads and differentials are coming off as a result.
WEAKER MARKET
The development is the latest to indicate weakness in the physical crude market.
Differentials in some of the world’s main physical markets have slipped due to a jump in freight costs and a drop in refining margins, according to traders and LSEG data.
Angola and Nigeria – the other major West African crude exporter – both have sizeable overhangs for crude loadings scheduled for November, traders said last week, and this was starting to weigh on crude premiums.
Still, the drop was not enough to reinvigorate demand, traders said.
Low margins, high shipping costs and a flat forward price curve have created a “nasty cocktail,” said a trader late last week. “Levels will trade nowhere near these offers.”
Source: Reuters (Reporting by Natalie Grover and Alex Lawler in London, additional reporting by Robert Harvey; editing by Jonathan Oatis)