LONDON, Nov 18 (Reuters) – European refiners discovered themselves oversupplied with crude oil as anticipated shortages following the EU’s rising ban on Russian oil have but to materialize.
Brent crude futures for the subsequent month unfold narrowed sharply this week, reflecting higher provide within the bodily oil market as issues over EU sanctions on Russian crude started to ease.
The premium on the ahead value to the futures value – referred to as a backwardation market construction – often signifies a provide bottleneck.
Merchants cited Europe’s capability to switch Russian oil with grades from the Center East, the USA and Latin America whereas Asia requested for much less crude due to the financial slowdown and elevated use of Russian barrels.
Brent futures have additionally fallen about 7% this week, weakening for the second week in a row.
“There may be an excessive amount of oil round,” mentioned one European crude oil dealer.
“(European) refiners appear to be overbought in November and December, most likely due to issues across the Urals,” he mentioned, including that the French assault and refinery upkeep additionally contributed to the crude undersold.
Russian Urals crude oil costs surged in August as merchants and refiners rushed to purchase as many barrels as potential, fearing an EU ban on Russian oil would trigger shortages.
The EU will ban imports of Russian crude oil from December 5 and oil merchandise from February 5. The G7 value cap on Russian crude oil additionally got here into impact on December 5.
“Tight market expectations haven’t been realized,” mentioned a second European dealer, including that oil from Brazil, Guyana, Canada and the US Midland area was heading to Europe to enhance the provision image. Nevertheless, he warned that provides could tighten additional within the new 12 months.
Merchants mentioned refiners have tailored to life with out Russian crude, which has been a mainstay of Europe’s refining system.
Consequently, premiums for different grades comparable to Kazakh CPC Mix, West African and WTI Midland are all below strain.
European imports of Latin American crude have surged since Russia’s invasion of Ukraine, averaging 313,000 barrels per day (bpd) this 12 months, up from 132,000 bpd in 2021, in keeping with Refinitiv Eikon knowledge.
In July alone, Europe imported practically 600,000 bpd of crude oil from the area, the best since a minimum of 2015.
US crude oil imports additionally rose, rising to 1.1 million barrels a day this 12 months, in comparison with 800,000 barrels a day for all of final 12 months.
Midland WTI costs weakened to their lowest degree since mid-June as provides remained unsold.
Iraq additionally elevated exports to Europe by greater than 20% year-on-year within the July-November interval, Refinitiv Eikon knowledge confirmed, as Iraq faces stiffer competitors in Asia from cheaper Ural oil.
In Asia, spot premiums for Center Japanese grades have plunged not too long ago, with Dubai premiums hitting their lowest ranges since late January. Chinese language refiners, in the meantime, had requested for much less Saudi crude in December due to the financial slowdown.
“Nobody is clamoring for crude proper now,” mentioned a 3rd European dealer.
Reporting by Julia Payne and Ahmad Ghaddar Extra reporting by Rowena Edwards, Stephanie Kelly and Muyu Xu Modifying by David Goodman
Our Requirements: Thomson Reuters Belief Rules.