China buys into global marker crude

23 July 2012 18:34  [Source: ICIS news]

LONDON (ICIS)--The news that Chinese state owned producer China National Offshore Oil Corporation (CNOOC) had managed to buy Canada’s Nexen for $15.1 bn (€12.5bn) looked like a great investment opportunity, but the question was whether there were deeper reasons behind the deal.

Nexen is the operator of the 200,000 bbl/day Buzzard North Sea field, which is the major contributor to the Forties stream.

Forties, as the lowest quality grade in the BFOE (Brent, Forties, Oseberg and Ekofisk) North Sea marker basket, tends to set the level of Dated BFOE on a daily basis.

Dated BFOE (Dtd) is used not only as the benchmark for all other North Sea grades, but also for well over 50% of the world’s crude oil. West African grades from Angola and Nigeria, plus other smaller producing countries, such as Gabon and Equatorial New Guinea, as well as North African producers Libya, Algeria and Tunisia all base their crude prices on Dtd.

Biggest of all, Russian Urals crude exports, both from the Baltic and the Black Sea, are priced on a Dtd related basis, as are other grades from the Black Sea, such as Azeri Light, CPC Blend, Tengiz, Kumkol and Siberian Light.

Casting the net even further afield, most Australian export grades, plus some other Asian Pacific grades, are now sold on a Dtd related basis, rather then being linked to the Malaysian Tapis marker grade as in the past.

With China being the world’s second largest crude oil importer at around 2m bbl/day, it now has the opportunity to possibly influence the value of the marker grade on which most of its purchases are based.

It can potentially keep the quality of Forties depressed by continually introducing lower quality streams into Buzzard, but it will now also have intricate knowledge of the maintenance schedules, programming and other details possibly affecting the price of Forties and thereby Dtd , which will give it a measure of control over one of the world’s benchmark grades.

By: Tony Dillon
+44 20 8652 3214

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