European refiners oversupplied as oil scarcity fears subside By Reuters

By Julia Payne and Ahmad Ghaddar

LONDON (Reuters) – European refiners have discovered themselves oversupplied with crude as an anticipated scarcity owing to the looming EU ban on Russian oil has but to materialise.

The front-month futures unfold narrowed sharply this week, reflecting higher provide within the bodily oil market as fears over the EU embargo on Russian crude start to subside.

Premiums on immediate costs to future costs – often known as a backwardated market construction – often point out provide tightness.

Merchants cited Europe’s capacity to interchange Russian oil with grades from the Center East, america and Latin America whereas Asia is asking for much less crude due to an financial slowdown and elevated use of Russian barrels.

Brent futures costs have additionally slumped by about 7% this week, weakening for a second week in a row.

“There’s an excessive amount of oil round,” one European crude dealer mentioned.

“(European] refiners appear to have overbought in November and December, in all probability due to fears round Urals,” he mentioned, including that French strikes and refinery upkeep additionally contributed to a crude overhang.

Russian Urals crude costs jumped in August as merchants and refiners rushed to purchase as many barrels as doable, fearing the EU ban on Russian oil would result in shortages.

The EU will ban Russian crude imports from Dec. 5 and oil merchandise from Feb. 5. A G7 worth cap on Russian crude additionally comes into impact on Dec. 5.

“The expectation of a decent market has not been realised,” a second European dealer mentioned, including that oil from Brazil, Guyana, Canada and the U.S. Midland area was heading to Europe to enhance the provision image. Nevertheless, he cautioned that provide is more likely to tighten once more within the new 12 months.

ALTERNATIVES SOURCES

Merchants mentioned refiners have adjusted to residing with out Russian crude, which had been a mainstay of Europe’s refining system.

Because of this, premiums for different grades akin to Kazakh CPC Mix, West Africa and WTI Midland have all come below stress.

European imports of Latin American crude have soared since Russia’s invasion of Ukraine, averaging 313,000 barrels per day (bpd) this 12 months, up from 132,000 bpd in 2021, Refinitiv Eikon knowledge exhibits.

In July alone, Europe imported almost 600,000 bpd of crude from the area, the very best since at the least 2015.

imports have additionally elevated, rising to 1.1 million bpd already this 12 months, in contrast with 800,000 bpd for the entire of final 12 months.

WTI Midland costs weakened to their lowest since mid-June due to a provide overhang.

Iraq additionally elevated exports to Europe by greater than 20% 12 months on 12 months within the July-November interval, Refinitiv Eikon knowledge exhibits, as Iraq faces extra intense competitors in Asia from cheaper Urals oil.

In Asia, spot premiums for Center Japanese grades have plunged in current days, with Dubai’s premium touching its lowest since late January. Chinese language refiners, in the meantime, have requested for much less Saudi crude in December due to an financial slowdown.

“No one is screaming for crude proper now,” a 3rd European dealer mentioned.