Platts Forties sulfur de-escalator was assessed July 25 at its lowest value since June 2022, as record strength in sour crude differentials and high-sulfur refined products implied a quickly shrinking cost of sulfur.
Platts, part of S&P Global Commodity Insights, announced July 25 that the sulfur de-escalator effective Aug. 1 in Forties cargoes and related instruments in the Platts Market on Close assessment process would be 15 cents/b per 0.1% weight of sulfur over the 0.6% weight standard.
This is 5 cents/b lower than in July and its joint lowest since June 2020. Platts considers several indicators in the determination of the Forties de-escalator level, including the behavior of sweet and light crudes versus sourer and heavier streams in the North Sea and other competing regions, as well as the performance of refined products and refinery feedstocks, and the outright price of crude oil.
Quickly tightening sour crude supplies in response to an embargo on seaborne Urals deliveries, tapering OPEC+ output and continual increases in Saudi Arabian official selling prices have all firmed sour crude differentials in Europe through recent months while sweeter grades have slumped.
For example, North Sea Ekofisk differentials slipped to a discount to Johan Sverdrup for the first time on record moving from a $1.01/b premium to 73 cents/b discount between June 23 and July 26 as Johan Sverdrup differentials burst through all-time highs. Elsewhere, sour crudes in the Mediterranean such as Kazakh KEBCO are also sitting at all-time highs while Russian Urals’ FOB discount to Dated Brent has narrowed to its slimmest since Russia’s invasion of Ukraine.
Underlying sour tightness has also been felt in product markets where crack spreads in high sulfur fuel oil have shot upward. Northwest European 3.5% fuel oil cracks struck their highest value since November 2020 in June with the Hi-5 fuel oil spread also reaching its narrowest in the same period.
European HSFO supplies have been dented by declining high sulfur residual fuel production as refineries have pivoted to sweeter crude diets amid tightness in the sour market, while seasonal demand drivers have also proved supportive.
Notably, Saudi utilities’ demand for cooling purposes has provided a draw on global HSFO reserves, while summer road-construction season in Europe has precipitated a switch to bitumen production among many refineries at the expense of HSFO.
A similar picture has been seen in middle distillates, with the Northwest European sulfur spread — which measures the differential between CIF ultra-low sulfur diesel cargoes and CIF 0.1%S gasoil cargoes — having narrowed significantly on the month.
The spread fell from a high on the month of $42.45/mt July 5 to minus $1/mt July 18, the first time a negative spread was recorded. This was attributed to the CIF NWE 0.1%S gasoil cargo differential rising to an 11-month high on an uptick in demand coupled with supply tightness for high sulfur gasoil as refineries returning from maintenance maximized diesel instead.
The spread has since risen to $11.25/mt as of July 26, but remains below the July average of $16.01/mt.
More broadly, the Brent-Dubai exchange of futures for swaps contract, a widely watched indicator of sweet-sour value spreads, shrank to its weakest since October 2020 in late June. Platts assessed the front-month contract at minus 15 cents/b, June 30. The contract since rallied to 84 cents/b July 26, though this remains significantly lower than at any time in 2022.
Source: Hellenic Shipping News
