A wave of strikes started in France Tuesday over pension reforms.
The strikes have led to North Sea crude differentials falling this week, as refinery runs are severely hampered.
Platts assessed the Forties differential to benchmark Dated Brent at minus $0.39/barrel, the weakest its been since August 24, Platts data shows.
"There is no positive news coming from France--this whole French situation has a bit more legs than people originally thought," a North Sea crude trader said. "Why buy if you haven't got a good sense of when it [the strike] is going to be resolved?"
Total, France's largest oil refiner, typically takes three to five cargoes of Forties into its system every month, sources said, so the closure of the network is adding pressure the grade's values, sources said.
With European refining capacity down and North Sea differentials weak, sources are now looking towards buying "cheap crude," as one trader called it, in order to store.
"If you have your own storage and can cover the capital, then it makes sense to buy now, because when the strike is over people will want to take advantage of the good margins," the trader said.
However, although the move may make financial sense to some refiners, it will only work if the capital can be covered, the trader said, which some refiners may have trouble in doing as a result of cash flows.
Furthermore, some participants will not want to take delivery and make payment of a cargo so close to year's end, due to the impact of the payment on their end of year bookkeeping, while not recouping any of the refining margin in the same year.
Payment on crude cargoes tends to occur 30 days after loading, possibly leading to extra pressure on November-loading cargoes, sources said, as smaller companies might like to be cash-rich going into the next year.
"You'd rather pay in 2011, so at the end of the year your cash flow is better. In terms of how analysts look at companies it has a big effect on share price," the trader said.
Talk of falling grade differentials coincided with Norwegian major Statoil issuing an unprecedentedly large list of grades it is looking to sell for November.
Typically the company shows around seven cargoes at a time, giving buyers a starting point from which to negotiate particular cargoes.
"Statoil put out an enormous list of cargoes today, normally it's seven or eight but this is much bigger than that," said one trader who received the list from Statoil.
While several trading sources sounded bearish tones on crude, one urged caution on how fast the differentials might rise when the French industrial action ends.
"When the French do come back we are going to see a big correction," he said. "People will start buying fast and it's likely to get overbought and the margin will be eroded."
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