Exploring the dynamics of Midland crude supply and Asian demand in the Atlantic market

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Joel Hanley:

Hello, and welcome to the Platts Oil Markets Podcast from S&P Global Commodity Insights. I'm Joel Hanley. As oil prices start 2025 with a bang, we look at how resurgent US crude exports are having an impact further afield.

As the world headed into 2025 with talk of lower demand growth, Chinese weakness, and overstock supply, you'd be forgiven for thinking that oil prices would be exiting the $70 to $80 a barrel range and slipping into the sixties. But ever the surprise package, oil prices are a lot nearer the top of that range, and they've been heading towards the $80 per barrel mark. Now, the price of Platts Dated Brent has risen from $71.92 on December the 23rd to a full $6 higher in its latest assessment on January the 8th. A full $6 higher in its assessment on January the 7th.

Now, the trend, according to many, for global crude oil markets is, of course, still downwards in the longer term, but there's no denying we're seeing a bit of a blip of strength. Is it the cold weather on both sides of the Atlantic? Is it a Chinese stimulus package that's making money move faster? Or is it the second coming of Trump which has seen some asset classes, such as cryptocurrencies, go through the roof? Well, whatever it is, we have seen a return to large volumes of US WTI Midland leaving the US, forcing North Sea and West African grades into new, or perhaps old areas, and an interesting new set of trading dynamics have occurred.

Now, with me to discuss this on the podcast are Joey Daly, one of our North Sea and Dated Brent reporters at Platts in London, and George Delaney, who covers West African markets generally for us here, also in London.

So, Joey, let's start with you. After a bit of a lull towards the back end of the autumn in 2024 when we didn't see a huge amount of WTI Midland coming over perhaps, or certainly not being competitive in the window, shall we say, December saw quite a large volume of Midland coming over to Europe. But what were the reasons for that, and what was the impact?

 

Joey Daly:

It did indeed, yeah, an awful lot of crude coming from the US Gulf Coast made its way to Europe in December. In fact, a couple of sources reported to us that it was record volumes making its way over to Europe. A few sources suggested, through the month, that it was volumes that had been originally earmarked for Asian buyers, for China and for India, that had been diverted to Europe. It's no coincidence that this has come during a record high period for the WTI Brent spread. So we've seen ICE Brent's premium to NYMEX futures really, actually, really surging through December. So if you're moving WTI Midland into Europe, you might be buying on a NYMEX linked benchmark and selling them on an ICE Brent linked benchmark. So it's giving that incentive for people to move the oil into Europe, and maybe take it away from other areas like Asia.

 

Joel Hanley:

Well, despite exaggerated rumors of their death, there's still plenty of North Sea grades in the area. So what's happened to those? What are we seeing on differentials? And are they moving locations particularly?

 

Joey Daly:

Through the month, we found there to be enough demand in Europe to actually take those grades. They found homes in Europe alongside Midland. And their price remained, actually, broadly steady through December, with demand able to absorb that added supply from the US, at least for most of the month. Towards the end of December, it seems like maybe the majority of refineries were covered, and price for those local grades really dropped off, just crumbling under the weight of this Midland supply into the region.

 

Joel Hanley:

I suppose the North Sea and the European refining system is quite adaptable, so it sits in between lots of different places. It can take crude from West Africa, has, of course, been a major source of crude into Europe, but also into Asia. You mentioned Asia there, Joey. Let's bring George in. George, the knock-on effect of Midland coming in, has this left West Africa looking for homes again after a period of some stability?

 

George Delaney:

Yeah, I think it's fair to say, through December, the Nigerian sentiment, Nigeria particularly being near that light-sweet stream from West Africa, high-volume stream from West Africa, is generally seen as... Generally looks, WTI Midland, has always been its competitor when looking into the European buying market. Now, yeah, as I said, sentiment fairly soft. It seemed to be waning already when we were looking. In December, you're looking at mostly January loading cargoes from Nigeria. You're coming into a traditionally soft demand season. We saw a growing list of overhang barrels from December into January, and subsequently now, some January into February. And that was actually demonstrated in the West African window. We had Bonny Light offered in the Platts market on closed assessment process in the middle of December for a mid-January loading cargo, which traded at a 55 cents per barrel premium to Dated Brent, which was actually quite a lot softer than its previous assessments. A few days earlier, it would've been assessing at just above a dollar per barrel premium to Dated Brent.

So you certainly were seeing with the Midland arrivals into West Africa, along with soft demand, just generally speaking with Nigeria, the sentiment in the market was particularly soft. And, also, probably important to mention that there was rumors that Dangote, which had been taking a little bit more Nigerian crude towards the end of the year, was beginning to lower its take from NNPC. Yeah, so several things coming together, Midland certainly being one of them, to dampen the sentiment in December for Nigeria.

 

Joel Hanley:

And as I said, Joey mentioned Asia, traditionally, a great user of West African barrels. China, particularly, has been active, not only in the US markets, but also in the West African markets. So I'm wondering what the interplay is there. Joey, we've seen certain North Sea grades going over to China, which doesn't happen all the time.

 

Joey Daly:

We have, yeah. In recent sessions, we've seen a lot of bidding activity for cargoes of Forties on an FOB basis. The Forties will occasionally make its way to China, and to the East Asian market in general, when the conditions are right. And this FOB activity suggests to us that buyers want the ability to perhaps not take the grid into Europe, and to perhaps load larger vessels to take it on a longer haul voyage to the East. So, recently, we've seen, very recently actually, we've seen Mitsui Petroineos bidding in the Platts MOC for Forties after a period of actually quite offer heavy activity on that grade. There's been a real resurgence in interest for FOB barrels, which, as I was saying, suggests that there's this open arbitrage to East Asia for the slightly heavier, slightly sourer, with respect to the surrounding North Sea crude's Forties grade.

 

Joel Hanley:

Yeah, it's interesting because Forties is a grade that looks a lot like Murban in the Dubai benchmark now, whereas Murban is the lightest and sweetest of the grades. I suppose Forties, of the Dubai grades, Forties is the heavier and sourer of the North Sea grades, or at least the Dated Brent grades. And for the planets to align, or the stars to align I suppose, to have enough Forties cargoes in a row, and to eat up the demurrage while those are loading, that's actually quite an undertaking these days. There are only about 12 cargoes of Forties a month these days, so there used to be more than a cargo a day. So that flow has obviously slowed down over the years, but it's really interesting to see it coming back. China is a big buyer of Angolan grades as well. Are they taking much of that at the moment? Is there some strength to be seen in West Africa that way?

 

George Delaney:

Yeah, we've been hearing from the traders that we speak to in West Africa, the Chinese buying for Angola is certainly looking a lot stronger heading into the new year. We're recording, in early January, we're looking at a February loading trading cycle. Very, very soon, we'll be looking at March programs for Angola. And it seems that trading pace has really kicked off. I think it's fair to say about half of Angolan exports ends up going to China anyway on a monthly basis. So, really, in Angola, it's about the trading pace. When China isn't buying and the activity is slow, sentiment is usually soft. Sellers of cargoes then tend to need to find other outlets to clear into. But when trading's fast, the sentiment is generally a bit stronger.

We've also had, a very, very key point, which probably also applies to the North Sea, is that if you look at the Brent Dubai spread, and this narrowed down quite a bit, especially through December, it's rebounded up a little bit in early January, but still below it's 2024 average. Which has also incentivized Asian buyers to begin looking into the Atlantic for some crudes, rather than perhaps in the Middle East. What we're hearing is Angolan crude's trading at 50 cents to a dollar per barrel higher on the differentials for February loading cargoes, when compared to January, and even December, loading cargoes. So, certainly, the Chinese trading pace is definitely returning for this current cycle.

 

Joel Hanley:

Interesting. And I think we maybe saw some evidence of that in the Saudi Aramco OSPs, so their grades into Asia, which are all up between 40 and 60 cents a barrel, I think, in the February OSPs. So, again, there's presumably having, I don't want to say reached rock bottom, but certainly having declined for some months in a row, we're starting to see maybe a sense of maybe things picking up in China again. So that might be behind that.

One last thing, just to close out on the North Sea, I mentioned, Joey, that, through some of the autumn, we saw WTI Midland not particularly competitive in the six grades in the basket in Dated Brent. Indeed, it was only actively defining the value about 3% of the month, whereas in its most influential month, it's been nearer 80%. So which grades are you seeing currently in the North Sea basket of those six grades, Brent, Forties, Oseberg, Ekofisk, Troll, and Midland? Everyone's heard me say that a million times. Which grades are really defining the value of Dated Brent at the moment by being the most competitive? Because it has been Forties, Ekofisk, and to an extent Midland. But what are you seeing as we kick off this year?

 

Joey Daly:

Yeah, so you're right. In Autumn, we really didn't see WTI Midland demonstrating value that much. But now we've seen this return of supply of the grade, it's been a lot more active in the benchmark. And through December, there was a huge uptick in how many days it had demonstrated value. We still saw Forties, as I mentioned, demonstrating value. But, also, Ekofisk has been very much holding its own, and demonstrated value through December about as much as Forties did. Which is a little bit different to what we saw in 2024, where Ekofisk played a little bit less of a role. But, in recent months, it's really come into the fore, and demonstrated value more and more in the benchmark.

 

Joel Hanley:

And this is against a backdrop of huge liquidity in the MOC, we're seeing a large amount of cargoes, record cargoes, I think, last month?

 

Joey Daly:

Yes, we did see record trade liquidity in our market on closed assessment process with 36 Dated Brent eligible cargoes trading through the month, which is an all time record. And it wasn't just Midland, we saw, I believe, every grade in the basket trade multiple times, a real bumper liquidity month. Which is just really part of a trend we've seen all through 2024, where liquidity has been slowly rising, not just in our physical window, but also in our cash BFOE and CFD windows, with more liquidity, and also new participants and returning participants helping to swell those trade counts.

 

Joel Hanley:

Excellent. And all those data points, of course, provide all the transparency we need for robust assessments so that's really good to see. Thank you, Joey, and thank you, George, as well. I should also thank you, the listener, for joining us on this podcast. And before we go, I'm delighted to say that registration for the Platts London Energy Forum 2025 is now open. You can join us on February the 24th, and come along and meet me, Joey, and George, as the global energy community convenes in London to kick off International Energy Week. The key theme is serving tomorrow's markets, looking at how we integrate traditional energy markets and future energies. Once again, we'll be bringing you unparalleled insights, networking opportunities, and discussions on the pressing challenges and emerging trends that will define the energy landscape of tomorrow. The event is free to attend, and you can find the link in the show notes. This episode of the Oil Markets Podcast was produced in London by Felix Fernandez.