Heavy volume of US crude oil exports to hit Europe in May-Jun, on wide Brent/WTI spread
Europe will see a high volume of US crude oil exports land on its coasts in May and June, driven by a wide spread between Brent and WTI crude futures, European traders said.
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Market sources estimated US exports to Europe would average 800,000 b/d between mid-May and mid-June, including 25 million barrels in May overall.
Of the 25 million barrels expected to land in May, 15 million barrels had already been placed with end-users, a source said.
“We are seeing record arrivals from the US to Europe,” a trader said, adding that while all sorts of grades were crossing the Atlantic, WTI Midland represented the largest portion.
Front-month ICE Brent futures were trading at a $5.40/b premium to the equivalent NYMEX WTI contract at the London close Thursday. By comparison, the WTI/Brent spread averaged $1.10/b in 2016 and $3.62/b in 2017 and has averaged $4.49/b year-to-date according to S&P Global Platts data.
Heavy, sour grades such as Mars were also said to be available in the Atlantic Basin, but refining sources said offers appeared less attractive in light of competitive Urals barrels.
According to market participants, WTI Midland was offered around Dated Brent plus 40-80 cents/b for delivery into the Mediterranean in May, with one source citing a negative differential.
Eagle Ford was heard pegged around Dated Brent plus 50 cents/b.
European refiners have enjoyed growing availability of supply from within the region as well as having a wide diversity of grades from further afield to choose from.
As a result, Atlantic Basin crude has been under pressure from heightened competition and the complex saw a widespread fall in values across Mediterranean, West African and — to a limited extent — North Sea grades, recently.
Mediterranean sweet crudes such as Kazakhstan’s CPC Blend and Azerbaijan’s Azeri Light were seeing some sweet crude demand displaced by US cargoes as they arrived in greater volumes in May, trading sources said.
“I think a lot of people have covered until the last decade of May, and if they do buy, everyone is wanting a [CPC Blend] cargo below Dated Brent minus $2.00/b,” said one sweet crude trader.
While sources said distillate-rich Azeri Light has been able to find homes in arbitrage flows to Asian refineries, naphtha-rich CPC Blend has had to contend with a massive May program, and dwindling demand for non-baseload buying in its traditional Mediterranean home, as refineries have instead snapped up distressed West African crudes and sampled US grades such as WTI Midland and shale crude Eagle Ford.
CPC Blend was assessed at its lowest versus the Platts Mediterranean Dated strip since 2012 on Tuesday at a discount of $2.165/b.
“CPC Blend, it is interesting to see it go so low but I do not think it has been offered to a level that is too extreme. If refineries thought it was cheap, they would have bought. People are buying US grades [instead],” a second Mediterranean crude trader said.