Brent-WTI spread to narrow on North Sea output, BNP Paribas says

The spread between Brent and West Texas Intermediate crudes will narrow in the coming months as North Sea output normalizes after delays to Forties shipments in October boosted the gap to the most in a year, according to BNP Paribas SA.

Brent on the ICE Futures Europe exchange in London was $22.65 a barrel more expensive than West Texas Intermediate on the New York Mercantile Exchange today, the widest since Oct. 20, 2011. Fourteen out of 16 Forties cargoes originally planned for loading in October were deferred following longer-than- expected maintenance at the Buzzard field, the biggest contributor to the blend, the bank said.

“Negative supply-side developments in particular for Brent proved even larger than we expected,” Harry Tchilinguirian, a London-based analyst at BNP Paribas, said today in an e-mailed report. The bank recommended in August a spread trade involving buying Brent for October and November settlement, and selling WTI contracts for those months.

The wider Brent-WTI spread was also because of tensions in the Middle East, Vienna-based analysts JBC Energy GmbH said.

“Geopolitical risks, manifested most recently in skirmishes between Turkey and Syria, are supporting the European benchmark to a greater extent than its U.S. counterpart,” David Wech, managing director at JBC Energy, said in the report today.

With the assumption of a normalization in North Sea supply over the next two months, “we think the mileage in this trade is now nearing its limits and the time has come to close and reverse the recommendation,” BNP Paribas said.

Forties is the most abundant of the four North Sea crude grades that make up the Dated Brent benchmark and, as the cheapest of the four, typically sets the marker used to price more than half of the world’s oil.

Loadings of Forties dropped to 160,000 barrels a day in September, the lowest since Bloomberg began compiling the data in 2007. The drop in exports came after the 200,000 barrel-a-day Buzzard field was shut for maintenance on Sept. 4.

“While this was expected, difficulties in the resumption of output were not,” BNP Paribas said. “The restart of Buzzard has been delayed from Oct. 3 to Oct. 16, deferring October cargoes into November.”

Oil production at Buzzard is “expected to resume mid- October,” Patti Lewis, a Calgary-based spokeswoman for Nexen, the operator of the field, said in an e-mailed response to questions on Sept. 28.

“We now suspect that cargo loadings will normalize between November and December, putting downward pressure on prompt Brent,” Tchilinguirian said.

Forties exports are scheduled at 18 cargoes in November, compared with a revised 14 for this month, according to the latest shipping plan.

The grade was 56 cents a barrel more than Dated Brent today, down from yesterday’s two-month high of a premium of 65 cents, according to data compiled by Bloomberg.

Loading programs are monthly schedules of crude shipments compiled by field operators to allow buyers and sellers to plan their supply and trading activities.