North Sea oil production to fall almost 12 pct in May

By David Sheppard

LONDON, April 11 (Reuters) - North Sea daily oil production tracked by Reuters is set to fall by almost 12 percent in May from April due to work on several major fields, potentially raising prices by tightening supplies just as refineries return from spring maintenance.

Output from 12 of the main British and Norwegian crude streams will average 1.732 million barrels per day (bpd) in May, down from 1.962 million bpd in April, a decline of 11.7 percent.

While average daily output at all fields is slightly lower for the month, partly due to May having one more day than April, the majority of the fall is because of planned maintenance work at several key fields.

"The market will definitely be tighter in May," one North Sea trader said.

The four crude streams that underpin the Brent benchmark - Brent itself, Forties, Oseberg and Ekofisk (BFOE) will load 774,000 bpd in May, down from a 940,000 bpd in April.

Maintenance at Forties will cut production to an average of 329,000 bpd in May from 380,000 bpd in April, while Ekofisk output is expected to fall to an average of 290,000 bpd from 340,000 bpd.

Oseberg output will fall to just 39,000 bpd from 100,000 bpd due to maintenance, which will also have a knock-on effect on Statoil (Xetra: DNQ.DE - news) 's Grane field that will supply less than 20,000 bpd in May from 80,000 bpd in April.

"With the North Sea turnaround season starting we're seeing much lower supplies in May and potentially right through until August, which should help underpin physical Brent prices," Andrey Kryuchenkov at VTB Capital in London said.

"Nevertheless demand isn't particularly strong right now, which is why we've seen the curve flatten, and the return of supplies from other areas like Libya could weigh on Brent futures."

Brent futures for May delivery were trading near $107 a barrel on Friday, with the June contract also at a similar level.

Brent has traded in a narrow range between $104 a barrel and $112 a barrel so far in 2014.

HOUND POINT

Off-setting the impact of lower supplies to a degree will be maintenance work at the Hound Point loading terminal in the Firth of Forth.

That work should mean Very Large Crude Carriers (VLCCs) will be unable to load during May, likely cutting off exports to far away destinations like South Korea as it is too expensive to send numerous smaller ships, traders say.

Tax breaks for South Korean refineries have made it at times economical to send North Sea crude all the way to Asia in the last two years, providing an additional source of demand that occasionally tightens the market.

Traders have suggested it might still be possible to send VLCCs to South Korea by loading smaller vessels at Hound Point before executing a ship-to-ship transfer onto a larger tanker, though many believe this is likely to be too expensive.

The prospect of higher supplies from Libya, a key supplier to Europe, may also offset some of the shortfall, analysts said.

An agreement last weekend to open two eastern ports may mark the beginning of the end of the nine-month blockade of major oil terminals, which have cut exports to a trickle from a post-civil war high of more than 1 million bpd.

"The price spread between the two front-month Brent futures contracts is now nearly zero, a situation that is unlikely to last in view of the ongoing risks to supply in Libya, a North Sea supply that is expected to decline sharply next month and the risk of oil sanctions against Russia if the crisis in Ukraine were to escalate further," Commerzbank (Xetra: CBK100 - news) analyst Carsten Fritsch said.

"Brent is thus likely to rise towards $110 per barrel again in the short term." (Reporting by David Sheppard, editing by David Evans)