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OPEC Reference Basket - October 2017

Source: OPEC 10/31/2017, Location: Europe

The ORB monthly and y-t-d values rebounded to above $50/b in September. The ORB increased sharply for the third consecutive month, jumping a hefty 8% to reach its highest value since June 2015 and nearing the $55/b level. The ORB also ended 3Q17 higher at about $50/b.

Oil prices rose steeply in September amid major support from improving market fundamentals, particularly as relates to the oil market rebalancing as OPEC and key non-OPEC oil producers continue to successfully drain the oil market of excess barrels as demonstrated by a more than 100% conformity level so far with their voluntary production adjustments this year. Supporting this surge in oil prices was heightened geopolitical risk as Turkey threatened to cut oil flows from Iraq's Kurdistan region toward its ports, putting more pressure on the Kurdish region over its independence referendum. Prices also rose on tightening US distillate stocks as its supplies contracted while exports continue to be robust. Physical crude oil differentials also showed a noticeable improvement due to strong demand, firm refining margins and tight supplies.

In addition to seasonal refined products demand, unplanned refinery shutdowns in Europe and the USGC have helped refining margins globally. Oil field maintenance as well as the ongoing lower supply of sour crudes, particularly in Asia and Europe, due to the OPEC and non-OPEC production adjustment, has underpinned physical crude oil values. Oil price gains have also been supported by anticipated demand from US refiners resuming operations after shutdowns due to Hurricane Harvey.

Nevertheless, the market was also under pressure from a build in US oil inventories resulting from lower refinery runs on the USGC due to the shutdown of several refineries when Hurricane Harvey hit.

M-o-m, the ORB value rose $3.84, or 7.7%, to settle at $53.44/b on a monthly average basis. For 3Q17, the ORB was 3.1%, or $1.50, higher at $49.98/b. Compared to the previous year, the ORB value was 30.1%, or $11.59, higher at $50.13/b.

ORB component values improved along withrelevant crude oil benchmarks and monthly changes in their respective OSP differentials. A healthy physical market, particularly in the North Sea, also supported ORB components linked to Brent. Crude oil physical benchmarks, namely Dated Brent, Dubai and WTI spot prices, increased by $4.41/b, $3.27/b and $1.68/b, respectively.

The uplift in the Brent crude benchmark along with elevated price differentials supported light sweet crude Basket components from West and North Africa, boosting prices sizably to above $55/b. Saharan Blend, Es Sider, Girassol, Bonny Light, Equatorial Guinea’s Zafiro and Gabon’s Rabi values increased by $4.74 on average, or 9.2%, to $56.07/b. Physical crude price differentials for these grades remain high, on higher demand from Asia, particularly China and India. Booming refinery profits are helping West African oil producers to sell cargoes at higher values, aided by a shortage in certain types of crude amid the OPEC and non-OPEC producing countries’ voluntary production adjustments and geopolitical disturbances. Nevertheless, sales from storage, spurred on by a flat forward structure in Brent prices, capped West African crude price differentials.

Latin American ORB components Venezuelan Merey and Ecuador’s Oriente edged up to $49.13/b and $51.30/b, gaining $3.75, or 8.3%, and $3.85, or 8.1%, respectively. Tight sour crude supplies in the USGC and high exports continue to support these grades, despite the shutdown of several heavy conversion refineries on the USGC.

Buoyed again by the uplift in OSP offsets and support from healthy Asian demand as they prepared to ramp up heating oil production for peak winter demand in the northern hemisphere, the value of multiple-region destination grades Arab Light, Basrah Light, Iran Heavy and Kuwait Export improved further. On average, these grade values expanded by $3.63 for the month, or 7.4%, to $52.71/b.

Middle Eastern spot components, Murban and Qatar Marine, saw their values improve by $3.43, or 6.7%, to $54.94/b and $3.20, or 6.4%, to $52.91/b, respectively. Spot premiums for Middle East crude for year-end loading have hit multi-month highs, spurred on by robust demand in Asia. Asian buyers snapped up spot cargoes this month after Saudi Aramco and the Abu Dhabi National Oil Company lowered supplies and as they both prepared to ramp up heating oil production for peak winter demand.

On 10 October, the ORB stood at $54.23/b, 79? above the September average.

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