Brent crude is benefiting from a sharp rise in tanker freight rates, which makes oil from North Sea fields significantly cheaper to deliver to European refineries than supplies shipped from farther away.
Brent is priced using a basket of five North Sea crude grades: Brent, Forties, Oseberg, Ekofisk and Troll. Because these barrels are produced close to northwest European refineries, they have a shipping-cost advantage over oil arriving from the U.S. and other distant producers.
North Sea Brent-linked grades currently have a $10-$15-a-barrel advantage over longer-haul alternatives delivered to northwest Europe, according to the U.S. bank's estimates.
Northwest Europe typically imports about 4.5 million barrels of crude a day by sea. While supplies from the North Sea and other nearby fields travel hundreds of miles, competing grades from the U.S., Kazakhstan and other producers often travel 4,000 to 5,000 miles.
Under normal conditions, the difference in transport costs is relatively small. Tanker rates for Aframax--a widely used medium-sized oil tanker--typically added about 90 cents a barrel for every 1,000 miles traveled. Rates have now climbed to about $5.50, according to Morgan Stanley.
"Freight is not neutral to the price of crude oil: it affects different grades differently," analysts at MS said. "At the moment, Brent benefits from a specific advantage that gives it more price support than other crudes -- short shipping distances."
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