Northwest European Urals differentials fall to lowest since 2005

Quantum Commodity Intelligence – Premiums for Russia Urals crude oil against the underlying Dated Brent benchmark have tumbled to the lowest levels in 17 years, with geopolitical tensions in Eastern Europe seen as a deterrent to purchasing Russian barrels, while elevated Brent prices have helped widen the gap between sweet and sour crude.

According to broker reports, trading houses Vitol and Trafigura, along with Lukoil's trading arm Litasco, all offered Urals at a discount of Dated Brent -$6.30/b for barrels loading March 6-10 in the Platts market-on-close process, more commonly referred to as the 'window'.

These were the steepest discounts since 2005, when the global supply crunch saw the spread between light and heavy crudes blow out as the global refinery industry reached maximum capacity in sour crude refining, leaving lighter barrels commanding steep premiums.

North Sea Dated Brent is made up of a basked of light sweet crude, while Urals is classified as medium sour.

Dated Brent barrels, consisting of Brent/Ninian, Forties, Oseberg, Ekofisk and Troll have been trading at record premiums this month of more than +$3/b to the underlying Dated CFD swap, underpinned by buoyant distillate and gasoline cracks, while Urals has been hampered by weaker fuel oil cracks.

According to Quantum data, HSFO cracks in Europe slumped to a three-week low of below minus $13/b against Brent on Tuesday.

Brent futures are also commanding elevated premiums over other benchmarks with the Brent/WTI spread for April widening out to nearly $5/b on Wednesday, while the Brent/Dubai EFS hit a post-pandemic high of more than $7/b on Tuesday.

While the collapse in Urals differentials coincided with sanctions aimed at Russian financial institutions and individuals, exports of Russian crude and products are not expected to be impacted unless sanctions specifically targeting oil are added.