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OPEC Reference Basket

Source: OPEC 11/26/2013, Location: Europe

After four consecutive months of gains, the value of the OPEC Reference Basket (ORB) declined in October, but remained above $105/b for the third month. In addition to the bearish sentiment in the crude oil futures market, the physical oil complex was pushed lower by increased exports, high inventories and weak demand. The market was well-supplied with crude, as refinery maintenance and weak margins eroded demand. In Europe, poor cracks, particularly for fuel oil, depressed the medium-sour market. Higher supplies of North Sea crudes and the re-emergence of Libyan crude exports added to the downward pressure on the values of lighter crudes. In Asia, Middle Eastern distillate-rich grades traded below their official selling price formulas (OSPFs) for the first time in more than three months, amid weakening gasoil margins and rising supplies. The value of lighter sweet grades slipped as weak refining margins and plentiful North Sea and West African crude supplies weighed on the market, particularly after a fall in the Brent premium to Dubai. On the US Gulf coast, lower refinery demand and higher crude stocks weighed on heavy Latin American crudes.

A steep reduction in refinery utilisation on the US midcontinent and plentiful light crude supplies weighed on both land and coastal light sweet crude values. Meanwhile, bearish sentiment on the crude oil futures market led to a substantial reduction in net long positions of hedge funds and other large speculators throughout the month. The value of the ORB declined by about $2.04/b to a monthly average of $106.69/b in October. Compared with the same period last year, the Basket’s year-to-date value showed a decline of $4.20 or 3.8% to stand at $105.79/b. The ORB year-to-date value this time last year was around $109.99/b.

All ORB component values dropped in October, but by varying degrees. Most of the components were affected by lower refinery demand due seasonal turnaround as well as lower refining margins. Increased exports also weighed on differentials. Brentrelated crude values were below last month’s levels amid higher supplies from North Sea crudes and the return of Libyan exports, which eased Dated Brent prices. A part of Angola’s heavy grades, as well as North and West African light-sweet exports, struggled to place cargoes, resulting in lower spot values. On average, the prices of Brent-related components of the Basket from North and West Africa — including Saharan Blend, Bonny Light, Girassol and Es Sider — slipped by about $2.15. After a record surge last month, Middle Eastern and multi-destination ORB component values also weakened. These grades were affected by a general global weakness in the sour market. The European medium-sour market was well supplied with crude as refinery maintenance and weak margins eroded demand. In the US Gulf, lower refinery demand, rising production and limited pipeline capacity weighed on the sour complex.

Middle East sour crude spot premiums dipped amid lower refinery margins and increased supplies. Asia-Pacific’s imports of Atlantic basin crude undermined demand for Middle Eastern Gulf grades, particularly given a rise in the latest official selling price formula (OSPF). Brent traded at around $4 above Dubai, compared with $7 in early September. Atlantic Basin supply has risen as Libyan crude has returned to the market after falling to virtually zero a month earlier. The Middle Eastern grades Qatar Marine and Murban decreased by $1.30 over the month, while multi-destination grades Iran Heavy, Basrah Light, Kuwait Export and Arab Light weakened on average by around $2.15.

On 11 November, the OPEC Reference Basket stood at $103.39/b.

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