Traders describe the move as ‘rare’
BP is aiming to send two million barrels of North Sea Forties, the crude which usually sets the dated Brent oil benchmark, to Asia in a rare move, oil trading sources said on Wednesday.
The company is sending a very large crude carrier (VLCC) with 2 million barrels of the distillate-rich crude to South Korea, according to the sources.
The vessel is expected to load between December 15-20.
The value of Forties has risen over the past week to a 43-cent premium to dated Brent on Tuesday, up from a discount last Thursday, in what traders said was partly a result of BP demand for the grade. BP declined to comment.
Although the arbitrage to Asia is not unprecedented, traders describe the move as “rare.”
“It is very unusual,” a North Sea crude trader said. “Last time it happened was in 2008.”
The move follows a free trade agreement between the European Union and South Korea, which became operational on July 1.
According to the EU’s website, import duties have been eliminated on nearly all goods and services under the deal.
Market players said they expected companies to move to capture the reduction in tariffs going forward, which could further support Forties differentials after the recent increase.
“Import duties are to be eliminated on nearly all products and there is far-reaching liberalisation of trade in services covering all modes of supply,” it said.
The EU’s database shows that South Korea’s duties on crude from the EU will be wiped out, while for other members of the World Trade Organisation, a Most-Favoured Nation tariff of 3 percent will continue to be applied.
The Forties crude stream usually sets the value of dated Brent, which is used to price up to 70 percent of the world’s physical oil and is part of the underlying market for Brent crude futures.
BP has been active in the Platts North Sea trading window this week as differentials rose. On Monday, it bought a cargo loading on December 11-13 from Vitol at dated plus 50 cents and another loading December 18-20 at dated plus 65 cents on Tuesday.
Traders said BP was also buying Forties outside of the window at the start of the week.
A shipping fixture seen by Reuters showed that BP had fixed the Liberia-flagged VLCC tanker Alexander the Great from Hound Point in Scotland.
The tanker’s Greek-based manager Capital Ship Management Corp was not immediately available for comment.
Hound Point is the loading point for Forties crude and is owned and operated by BP.
Despite the trade agreement, some oil traders were not convinced shipping Forties to Asia would make money.
Taking into account the shipping time of between 20-30 days to Asia, one said the backwardation in the structure of the market could further dent profitability.
Some traders also said it was not currently economical to ship North Sea crude to Asia as the Brent Dubai Exchange of Futures for Swaps (EFS) stood around $4 a barrel for January.
The wide EFS limits the opportunity for the west-to-east arbitrage.
Source: Reuters