Weak Brent oil futures contrast with scarce physical supplies
* Supplies of almost all physical grades in Europe tight
* Refining margins strong and not pointing to poor demand
* Values for both light and heavy grades rally
LONDON, July 4 (Reuters) - The weak prices of European benchmark Brent crude futures contrast increasingly with the tight availability of actual oil from almost all of Europe's major suppliers.
It is not unusual for futures and physical markets to tell different tales of abundance versus scarcity.
Sometimes such contrasts can persist for months, with futures largely ignoring the physical market and being mainly driven by external economic and foreign exchange factors.
But quite often futures wake up to physical fundamentals as they did this week when U.S. crude futures rallied above $100 a barrel after the market realised there might be shortages at the delivery hub of Cushing for some months.
A similar story might be now developing in Brent futures , which were trading at around $105 a barrel on Thursday compared with nearly $119 a barrel in February.
Supplies of almost all physical crude grades consumed by Europe are now short including Russian, Iraqi, Libyan and African grades. North Sea supplies, which underpin Brent, are expected to be extremely low in the next months.
"The current weakness in the Brent market could turn if the expected North Sea maintenance through September materialises to squeeze supply of the four grades which make up the marker, while continued arbitrage interest from South Korea may further tighten availability," said David Wech from JBC Energy.
The West's energy watchdog, the International Energy Agency, estimates that North Sea field maintenance work will cut supplies by more than a tenth or 330,000 barrels per day (bpd) on average during May-September.
In particular, maintenance is expected to reduce the flows of the four most important grades underpinning Brent futures - Brent, Forties, Oseberg and Ekofisk (BFOE).
Although IEA predictions for June and July of very low supplies of BFOE have not materialised, August and September could see a substantial cut due to the maintenance work from an average of above 800,000 bpd seen last year and this year.
SWEET AND SOUR RALLY
Elsewhere, scarcity of supply is reflected in the premiums that oil firms pay to buy crude from producers such as Russia - Europe's most important supplier.
Prices for Russian Urals crude have spiked near an all-time high as refiners pay premiums as high as 70 cents per barrel to benchmark dated Brent, in contrast with a more usual discount of around $1.00, last seen in April.
That happened after Russia increased supplies to China under a new deal and diverted volumes to the domestic market to feed refiners and meet summer gasoline and diesel demand. As a result Russian exports to Europe are now at multi-year lows.
"Exports to Europe are likely to fall further as more is diverted to China," said Amrita Sen at Energy Aspects.
Hopes of substituting Russian oil with crude from other producers have not materialised as flows of Iraqi Kirkuk oil to the Mediterranean have been disrupted by a leak since June 21 while Iraqi Basrah crude goes mostly to Asia.
The second biggest supplier after Russia, Saudi Arabia, increased its official selling prices for all grades on Wednesday with European buyers facing the strongest increases.
"The higher Saudi prices are in line with a tighter global balance coming from both supply and demand fundamentals," said JBC, predicting a global crude stock draw of around 400,000 bpd.
A trader with a European refiner said he had repeatedly asked Saudi Aramco to allocate more sour, heavy crude.
"But so far I haven't got any extra barrels," he said.
The market is booming even for light, sweet crude grades although they have recently become abundant rather than scarce due to a U.S. shale oil boom.
Azeri Light premiums to dated Brent have risen by $1.50 per barrel in a month because of Libyan supply outages due to unrest. Libyan output is now down by a third to 1 million bpd.
West African supplies have also dropped in recent months, with Nigerian exports for August sliding to a four-year low, largely due to theft.
Even some of the grades that are least popular and most difficult to refine, such as Kazakhstan's CPC Blend, are enjoying the moment, bouncing off May lows to near parity with dated Brent.
"With craziness in Urals we might be higher (in CPC) already by now," a trader with a major European refiner said.
He added that the strength in oil prices did little to depress refining profitability as margins remain healthy, in a sign that demand is Europe is not as poor as generally thought.
(Reporting by Dmitry Zhdannikov; Editing by Anthony Barker)