North Sea crude CFD backwardation steepest in 6 months on VLCC fixtures: traders


The North Sea's Contracts for Difference market, used to hedge the difference between physical Dated Brent prices and forward cash BFOE contracts, has pushed into its steepest backwardation in six months due to exports out of the region, trading sources said Wednesday.

The second week CFD, January 27-31, reached a six month high of $0.50/b over the third week CFD (February 3-7), Tuesday, and was heard holding the same level Wednesday.

It was last higher on July 23, 2013 at $0.60/b, Platts data showed.

"This is a very tight market, and it's based on real fundamentals," said one trader. "Barrels are moving East, and the arbitrage for other barrels into the region doesn't work; it's going to get tight."

Soaring freight costs for Panamax and Suezmax vessels this month have curbed crude imports into Northern Europe, said traders, leaving North Sea cargoes to sell out fast.

Flat price CFDs also rose to fresh four-month highs, with the second week up $0.20/b at $1.55/b, its highest since September 6, and the third week up $0.13/b at $1.05/b, its highest since September 9.

Almost all February loading North Sea cargoes have sold, according to traders, leaving supported differentials, but with little activity.

"There is the timing issue of waiting for the market to fall again, but it doesn't have to come off yet," said another trader Wednesday. "It doesn't have to do anything. It's hard to sell, because of the lack of availability, and hard to buy, because its expensive."

Source from : Platts