Why Crude Spot prices averaged lower in April



 Nigeria grades moved into deeper discount

Olusola Bello

Crude spot prices averaged lower in April for the first time in six months, with North Sea Dated and WTI falling 1.7 percent and 1.0 percent, respectively, m-o-m, though they remained at high levels not seen in more than a year.

Spot prices softened on less supportive sentiment in the crude futures market as COVID-19 infections surged in several countries, which raised concerns about slowing near-term crude demand, and added to subdued crude demand from Europe and some Asian refiners due to refinery maintenance season.

According OPEC Monthly Report for May, 2021, extended lockdowns in Europe in April, a sharp increase in COVID-19 cases in India and several other parts of the world, as well as a decline in land mobility added concerns about potential reductions in refinery throughputs and weaker demand for road transportation fuels.

Furthermore, spot prices and crude differentials were under pressure in April on a well-supplied crude market and an overhang of unsold cargoes for April and May loadings, specifically in the Atlantic Basin.

OPEC Monthly Oil Market Report – May 2021 production from Libya and the declaration of force majeure at the Marsa El-Hariga terminal had a limited impact on prices as the market was well supplied.

Lower production from Libya and the declaration of force majeure at the Marsa El-Hariga terminal had a limited impact on prices as the market was well supplied.

Dubai prices also fell in April by 2.3% m-o-m, more than other key benchmarks, as buying interest from Asian refiners lessened in the second half of the month, with market participants expecting higher supplies in the Middle East in the coming months.

The light sweet crude value in the Atlantic Basin continued to trade at multi-month lows in April as sellers struggled to place their cargoes for loading in April and May, amid a lack of buying interest from Europe, while an unfavourable west-to-east arbitrage and lower buying interest from China added additional downward pressure.

A high value of Brent compared to Dubai made the Brent-related grades less attractive for Asian refiners.

On a monthly average, West African crudes tumbled further last month. Crude differentials of Bonny Light, Forcados and Qua Iboe moved into deeper discount against the Brent benchmark, falling on a monthly average to discounts of 88¢/b, 70¢/b and $1.06/b, respectively, their lowest since May 2020.

In the Mediterranean, the same downward trends were recorded, with the flagship Kazakh crude oil CPC Blend differential dipping in April to a discount of $2.61/b on a monthly average, and a discount of $3/b in late April on daily basis. The sweeter grade, Saharan Blend, also was assessed at a discount of 98¢/b during the same period, unchanged m-o-m.

Crude differentials of medium and heavy sweet crude Cabinda fell further in April by 34¢ on average, to a discount of 47¢/

Forties and Ekofisk crude differential fell  by 27c and 33c respectively, on a monthly average in April to settle at a premium of 41¢/b and 6¢/b. In the USGC, Light Louisiana Sweet (LLS) and Mars crude differentials also eased despite a recovery in US refining throughputs, falling by 16¢ and 2¢ m-o-m, respectively, to a by premium of 2.02¢/b and 26¢/b on average in April.

In the Middle East, the sour crude market was firm in most of April, buoyed by healthy demand from Asian refiners, particularly from independents in China, which supported spot prices.

By the end of the month, spot values came under pressure as demand from Asian refiners lessened after refiners satisfied their requirements, while worries about lower demand from India due to the COVID-19 situation added downward pressure. M-o-m, the value of the Oman crude differential was little changed, increasing by 5¢ in April to $1.24/b, while the Upper Zakum crude differential fell by 18¢ to a discount of 16¢/b during the same period. OPEC Reference Basket (ORB)

The ORB declined $1.32, or 2.0%, m-o-m in April, but remained near its highest level since January 2020 at $63.24/b. All ORB components’ values decreased over the month alongside their respective crude oil benchmarks, with lighter grades slipping the most.

Sour components fell less than the Dubai benchmark as the decline of these components was partly offset by higher official selling prices (OSP) towards the Asian market.

The sweeter components fell more than Brent on lower OSPs and crude differentials. Y-t-d, the ORB value in April was 41.6%, or $17.91, higher than the same period in 2020 at $60.97/b. West and North African Basket components – Bonny Light, Djeno, Es Sider, Girassol, Rabi Light, Sahara Blend and Zafiro – fell $1.44 in April, or 2.2% m-o-m on average, to $62.86/b. The multiple regions’ destination grades – Arab Light, Basrah Light, Iran Heavy and Kuwait Export – decreased by $1.30, or 2.0% m-o-m on average, to settle at $63.58/b.

Murban crude declined by 98¢, or 1.5% m-o-m on average, to settle at $63.35/b, while the Merey component fell by 31¢, or 0.7% m-o-m on average, to settle at 46.16/b.

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