US crude supply spike to EU spur buyers discount on Nigerian crude grades


Asia’s reduced appetite for crude sets up oversupply in Europe
European refiners favor cheap-landing US crude
Steep falls expected for Sept-loading Nigerian, Med cargoes

The increasing flow of US crude into Europe is threatening to displace the region’s traditional light, sweet crudes, forcing sellers of Nigerian and Mediterranean crudes to discount September-loading cargoes, according to sources.

WTI saw flows into Europe in July hit pre-coronavirus levels, according to data intelligence company Kpler, amounting to 872,000 b/d, with demand for the more competitive light sweet grade weighing on European fundamentals.

Of that total, WTI Midland accounted for 414,000 b/d, as limited demand for WTI into Asia pushed more of it into Europe. The same slowdown in crude buying in Asia has also led to a greater amount of North Sea, Mediterranean and Nigerian oil in Europe, putting prices under further stress.

US oil is expected to continue flowing into the region into August, with one source record US imports.

Another source said: “I think US oil has swung from East and to tank, to coming to Europe, and tipped out local balances.”

The flow of US crude represents a significant challenge for sellers of Nigerian crude in particular, given that the country’s mainstay grades, such as Qua Iboe and Bonny Light, have been shunned by the usual big buyers in Asia.

“Sellers are in a looking-for-bids mode…they don’t see any demand at all,” said one market source, referring to Qua, which has been under-performing due to its higher light end cut.

“Light crudes are really taking a step down with ample Midland around,” another trader said, pointing to the length still available on Nigeria’s 1.5 million b/d September program, and with just a week to go before October trading would usually commence.

“All the grades are competing…nothing is moving,” another source said.

Traders say the spot market for September-loading cargoes from Nigeria hasn’t seen any activity for more than two weeks as would-be buyers in Europe wait for offers to fall further, reassured also by the absence of Asian interest.

The price for Qua, for example, was heard from two traders to have approached Dated Brent minus 50 cents/b in an Aug. 7 tender by South Africa’s Sasol, which would imply the grade lands in Europe at a significant discount to Azeri Light.

The competitive environment has also put pressure on local Mediterranean sweet crudes such as Azeri Light, Saharan Blend and CPC Blend.

As with crudes from West Africa, a reduced pull from Asia has meant higher volumes of the grades remaining for European refiners, where they have met a crowded market, according to traders.

“We are already late in the trading cycle [for Asian refiners], and nothing happened there,” a trader referring said in reference to August cargoes of CPC Blend.

“Med [refiners] are well covered until 2H September,” another trader said, pointing at the volume of crude available from the US and West Africa as bearish factors for the Mediterranean light sweet crude market.

Additionally, higher freight rates for Aframaxes in the region had made CPC Blend less competitive into Northwest Europe compared with delivered US crude, another trader said.

Indian Oil Corp., the country’s largest state-run refiner, has reduced its run rate to 75% across its nine refineries, from 93% in the first week of July.

Elsewhere in Asia, China has little capacity to take extra crude as it works through a backlog from record purchases earlier in the summer. Kpler data last week showed 79.16 million barrels of crude on tankers idled in Chinese waters for seven or more days, four times the normal levels seen prior to May.

It is unclear whether there is much appetite from refineries there to process higher volumes.

“It’s just hard to make a margin on this kind of atmosphere…I guess people can’t afford to run and store like they did in March/April,” another trader said.

The flow of WTI to Europe comes at a time when the economics would usually favor other grades with a better diesel yield, traders said.

However, the recent decline in differentials for Russia’s medium sour has not been sufficient and official selling prices for crude from the Persian Gulf means they land at a premium over Dated in North West Europe. “It kind of sounds like there is nothing cheaper available [than WTI]”, the trader said.