The second quarter of 2018 saw the Dated Brent market break briefly above $80/barrel for the first time since November 2014, buoyed by escalating geopolitical risk as US President Donald Trump moved to pull out of the Iran nuclear deal, throwing the future of Iranian supply into heavy doubt.
The spike in crude prices — and the resultant spike in prompt backwardation — had a pronounced impact on every crude market, causing many differentials to plunge to multi-year lows, attracting record flows of US crude into the region, and closing arbitrage windows for crudes that rely heavily on Asian demand to sell.
While the market pulled back slightly as trading moved into June, geopolitical and macroeconomic risk are likely to continue to play a major role in the market moving forward as a looming trade war between the US, China and the European Union, as well as renewed unrest in Libya, is likely to increase market volatility.
Furthermore, the end of refinery turnarounds in Europe and the start of the driving season are poised to boost the local consumption of North Sea crude oil in the third quarter, though within the BFOE basket, Forties and Ekofisk remain particularly exposed to arbitrage dynamics from the North Sea to the Far East, and from the US Gulf Coast to Europe.
Q2 saw record high traffic on both routes. In May, crude exports from the North Sea to Asia skyrocketed. Every single Forties cargo loaded out of Hound Point ended up sailing east, alongside 35% of the Ekofisk exports from Teesside.
Meanwhile, imports of US crude into Europe rose to about 700,000 b/d according to trading sources’ estimates, boosted by ever-increasing US crude production and as ICE Brent futures climbed more than $10/b above the NYMEX WTI contract, its widest point since 2015.
