European refiners oversupplied as oil shortage fears ease

European refiners oversupplied as oil shortage fears ease
European refiners oversupplied as oil shortage fears ease

LONDON, Nov 18 (Reuters) – European refiners have found themselves oversupplied with crude as an expected shortage due to the impending EU ban on Russian oil has yet to materialize.

The first-month Brent futures spread narrowed sharply this week, reflecting better supply in the physical oil market as fears over the EU embargo on Russian crude begin to ease. fade.

Rapid price premiums over future prices – known as retrograde market structure – generally indicate tightening supply.

Traders cited Europe’s ability to replace Russian oil with Middle Eastern, U.S. and Latin American grades, while Asia is demanding less crude due to an economic slowdown and increased use of Russian barrels.

Brent futures prices also fell about 7% this week, weakening for the second week in a row.

Reuters Charts

“There is too much oil around,” said a European crude trader.

“(European) refiners seem to have overbought in November and December, probably due to fears around the Urals,” he said, adding that French strikes and refinery maintenance also contributed to a surplus. of crude.

Prices for Russian Urals crude surged in August as traders and refiners rushed to buy as many barrels as possible amid fears the EU ban on Russian oil could lead to shortages.

The EU will ban imports of Russian crude from December 5 and petroleum products from February 5. A G7 price cap on Russian crude also comes into effect on December 5.

“The expectation of a tight market has not come true,” said a second European trader, adding that oil from Brazil, Guyana, Canada and the US Midland region was heading to Europe to improve the supply situation. However, he warned that supply is expected to tighten further in the new year.

ALTERNATE SOURCES

Traders said refiners have adapted to living without Russian crude, which had been a mainstay of the European refining system.

As a result, premiums for alternative grades such as Kazakh CPC Blend, West Africa and WTI Midland have all been under pressure.

European imports of Latin American crude have soared since Russia invaded Ukraine, averaging 313,000 barrels per day (bpd) this year, up from 132,000 bpd in 2021, according to Refinitiv data. Eicon.

In July alone, Europe imported nearly 600,000 bpd of crude from the region, the highest since at least 2015.

U.S. crude imports have also increased, already hitting 1.1 million bpd this year, compared to 800,000 bpd for all of last year.

WTI Midland prices fell to their lowest level since mid-June due to excess supply.

Iraq also increased its exports to Europe by more than 20% year on year in the July-November period, according to data from Refinitiv Eikon, as Iraq faces more intense competition in Asia. cheaper oil from the Urals.

In Asia, spot premiums for Middle Eastern qualities have plunged in recent days, with Dubai’s premium hitting its lowest since late January. Chinese refiners, meanwhile, demanded less Saudi crude in December due to an economic slowdown.

“Nobody is calling for rough right now,” said a third European trader.

Reporting by Julia Payne and Ahmad Ghaddar Additional reporting by Rowena Edwards, Stephanie Kelly and Muyu Xu Editing by David Goodman

Our standards: The Thomson Reuters Trust Principles.

. European refiners are oversupplied so fears shortage oil abate

. European refiners oversupplied oil shortage fears ease

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