When oil futures markets crash - as they have this summer - physical markets often move the other way as refiners jump on the opportunity offered by cheap oil to stockpile.

With futures prices now hovering around six and a half year lows, the physical market would typically begin to strengthen and signal a potential rebound in futures - in a repeat of patterns seen during the previous crisis of 2008/09.

But traders in barrels from Nigeria to Russia say the physical market remains stubbornly weak in further evidence a global crude oil glut is proving much more difficult to clear.

"I can't remember when during such a correction (in futures), differentials and values in the physical market stayed so weak. It tells me only one thing - the glut is still weighing on the market," said a trader in the Mediterranean market.

Oil prices have tumbled to around $40 per barrel from their 2014 peaks of $115 as a supply glut caused by a U.S. shale boom was aggravated by an OPEC decision to open the pumps to fight for market share and depress output of high-cost producers.

As oil prices began their slide, traders of Russian, Azeri, Kazakh, Nigerian and Angolan oil rushed to offer their grades at steep discounts as they struggled to place it with buyers.

The trend has continued for most of the past year, challenging the views from the likes of the International Energy Agency and big producer Saudi Arabia, which have repeatedly said lower prices would spur demand and ultimately help clear the glut.

"Strong demand? If it was as strong as everyone is saying, cargoes would be clearing much faster," a Russian trader said.

Russian Urals crude has been trading at a discount of between $1 and $2 per barrel to benchmark dated Brent in northern Europe compared with a discount of less than $1 during most of 2009, when oil futures began a recovery from their 2008 lows.

Azeri Light is trading not far off its weakest premium to Brent since 2010 and Nigeria's Qua Iboe grade - one of the key victims of the U.S. shale boom, which almost fully displaced it from the American markets - is hovering not far off its lowest premiums to dated Brent in a decade.

SUPPLY TO SPIKE FURTHER

U.S. bank Morgan Stanley, one of the biggest players in commodities markets in the past decades, said this week the latest weakness in oil futures appeared to be more driven by financials than physical markets.

"While oil fundamentals aren't strong, physical markets do not corroborate the substantial weakness in flat price," its analysts, including Adam Longson, said.

He cited Brent time spreads remaining more resilient in the past weeks than flat prices; the spread between Brent and U.S. WTI benchmarks narrowing despite concerns about high U.S. inventory builds; and North Sea and West African crude values being slightly stronger in recent weeks.

Traders said they would like to agree with Morgan Stanley's views but supply dynamics for the next months suggested the weakness would most likely prevail.

Several traders in Angolan crude said China was slowing buying, leaving large quantities of oil on the market while October loadings were the biggest since February. [O/LOAD]

Thus far there are only seven cargoes with Angolan crude going to term buyers compared with 12 to 15 in the past months. China's Unipec took only two cargoes compared with the usual five.

Nigeria plans to export at least 2.04 million barrels per day of crude oil in October, the highest level this year.

This comes at an unfortunate time for African nations, as European refinery maintenance typically peaks in October, limiting the amount of crude oil they consume. [REF/E]

Russian September Urals exports are also expected to spike as domestic refineries undergo maintenance, adding to heavy supplies from Azerbaijan and Kazakhstan.

Output from the 12 main British and Norwegian crude streams is set to climb to a 2015 high in September at 1.99 million barrels per day, reflecting the end of summer field maintenance season.

Underlining the struggle to sell cargoes, Shell this week offered a cargo of Gullfaks grade - usually sold in private and confidential deals - in the public Platts window.

Source: www.reuters.com

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