FOB Primorsk Urals cargoes have dropped to a six-week low versus Dated Brent after a jump in freight rates along the Baltic Sea to UK Continent route, which traders have said could hamper arbitrage opportunities for Urals crude to other regions.
FOB Primorsk Urals cargoes, in 100,000 mt Aframax-sized clips, were assessed at a $1.705/b discount to the Mediterranean Dated Strip Wednesday, the largest discount since a $1.755/b assessment on November 27.
S&P Global Platts assesses FOB Primorsk cargoes as a freight netback to the CIF-delivered Rotterdam Urals market, using the Baltic-UKC freight route to calculate Urals value back to its pipeline source at Primorsk on the Baltic coast.
The freight rate along the route hit a three-month high of $7.83/b Tuesday, before retreating slightly to $7.64/b Wednesday.
he higher freight rates for Aframaxes loading in the Baltic could make arbitrage economics to the Mediterranean more challenging, according to traders.
“Freight rising could be bearish,” a trader said. “When it gets too high it makes it difficult to arb [Baltic Urals] to the Mediterranean. Baltic Urals has to stay in the local market and if local demand isn’t great then differentials will drop.”
According to traders, there is currently no shortage of available Baltic Urals cargoes.
“There are still unsold cargoes for end-January,” the trader said. “Arbs are not open as there is no demand for Urals outside the usual buyers who have no choice but to run Urals.”
Source: Hellenic Shipping News.