Dated Brent premiums rally on extended oil pipeline closure

22 Feb 2024

Quantum Commodity Intelligence – Premiums for North Sea physical crude have rallied following delayed repair work that will restrict oil supplies to the UK Grangemouth refinery, leaving it reliant on a key benchmark grade.

Premiums for North Sea Forties crude, which is a major component of the Dated Brent ‘basket’ of grades, stand at around an 18-month high after repairs to a pipeline linking Grangemouth to Scotland's Finnart oil terminal are expected to take longer than expected.

According to broker reports, Forties is now trading at around +$2.40/b versus the underlying Dated Brent strip, the highest since 2022, although WTI Midland is setting the assessment at approximately Dated +$1.80/b over the underlying swap.

In turn, the ICE Brent Apr24/May24 spread has blown out to around $1/b on Thursday, the highest front-month delta since October.

Repair work on the Finnart pipeline is likely run for several more weeks and last into April, well beyond initial expectations for an early March restart, although there has been no official update.

The Petroineos-operated 150,000 bpd Grangemouth plant is connected to the Forties Pipeline System (FPS) for its crude oil intake from the North Sea, while it is also has a connecting pipeline to the Finnart Ocean Terminal in western Scotland for crude oil import and finished products export.

Forties

Forties production has decline sharply over the last two decades with volumes sinking towards 200,000 bpd, although during periods of maintenance output can be well below that level.

In early January, the Scottish Environmental Protection Agency (SEPA) reported a “small quantity of crude oil surfacing” around the Finnart oil terminal, which was brought to the attention of authorities by Petroineos.

SEPA noted the oil was surfacing from an underground pipeline and that the agency was coordinating a multi-agency response.

Petroineos announced last week it had started what it called ‘routine maintenance’ at Grangemouth, but it was unclear if the timing was linked to the closure of the Finnart pipeline.

"Our teams are currently undertaking a piece of routine maintenance works on the Grangemouth site," Petroineos said in a statement.

The Dated Brent basket consists of Brent, Forties, Oseberg, Ekofisk, Troll, and WTI Midland – with Forties and Midland being the two most liquid MOC grades.

WTI Midland has become a mainstay of the Dated Brent pricing mechanism following its introduction to the mechanism in June 2023 to address years of declining North Sea production.