Record influx of US Crude hits day-to-day oil markets in Europe

Physical oil markets in Europe are weakening — quashing a rally — as a gush of crude imports from the US head toward a region where refineries are shutting down operations for both planned and unplanned maintenance.

Key contracts for difference, derivatives that traders use to hedge moves in physical North Sea crude prices, have weakened by over $2 a barrel in the space of three weeks. Premiums for several physical grades have hit reverse. Timespreads for Brent futures, which give a sense of supply tightness, have also lost ground.

A record 2.2 million barrels a day of US barrels will be arriving in Europe on tankers this month, according to vessel tracking data compiled by Bloomberg. About a third will be eligible to set the the global benchmark price, Dated Brent. 

The influx will reach Europe’s shores at a time when some refineries there have seen their operations curtailed by unexpected halts, while others are set to carry out work during what is normally a fallow period. That means less crude processing.

Exxon Mobil Corp.’s Gravenchon refinery, the larger of its two plants in France, suffered a blaze. The firm’s Rotterdam facility also reported a fire just as maintenance was starting. In Norway, a power fault halted Equinor’s Mongstad refinery last month. There have also been disruptions in Germany and Finland.

Timespreads rallied sharply late last month, prompting hope among some bulls that the underlying market was improving. The reversal doesn’t necessarily crush that optimism, but it does show the effect of booming US crude exports. 

Midland West Texas Intermediate oil became part of the crudes that help to set Dated Brent in June last year, joining the North Sea grades Brent, Forties, Oseberg, Ekofisk and Troll. Its inclusion coincided with a surge in cargoes that has made WTI by far the dominant grade in setting Dated Brent. 

European refiners boosted imports of American barrels to replace Russia’s flagship Urals crude following the invasion of Ukraine. 

The volume Europe purchased from the US has jumped by nearly 1 million barrels a day since the war started, turning WTI Midland into a baseload for some European refineries. 

The grade is light, low in sulfur, and doesn’t need too much processing. That helps explain why European demand is holding up even as some refineries shut down their secondary units during maintenance season. 

Despite its appeal, WTI Midland is one of the cheapest crudes available in Europe, putting pressure on other grades. In the past three weeks, Forties — the main local grade in Dated Brent — has declined by $1 a barrel relative to the marker. Azeri Light, favored by Mediterranean refineries, also slumped by $1 over the same period. 

In West Africa, traders report that European buyers are biding their time in purchasing barrels from Angola and Nigeria — even if prices there have held up for now.

Even Nigeria, Africa’s top oil producing nation, isn’t immune from the US crude bounty. 

WTI has so far accounted for about 40% of the crude that its giant new Dangote refinery has purchased as the plant continues a ramp up toward full operations in the next year or so.

--With assistance from Alex Longley and Rachel Graham.