(Bloomberg) — A fresh burst of US oil exports is once again depressing prices of physical crudes from Europe to West Africa, offering a potential relief to consumers as the peak demand season is fast approaching.
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Observed shipments toward Europe are on course to rebound to at least 2.1 million barrels a day in the first 23 days of this month, an increase of a third from the average flow rate in April, tanker-tracking data compiled by Bloomberg show.
The rebound has coincided with WTI Midland, the US grade that now dominates the market in Europe, falling to the lowest level in more than a year. Likewise, the key North Sea crude Forties, which also helps set the global physical oil benchmark Dated Brent, also shed nearly $1 within the space of a week.
The buying and selling of physical crudes underpins global futures markets like Brent and West Texas Intermediate. It is dominated by refineries whose decisions are influenced by how they see demand from end users. It can nevertheless be short-term, depending on the ebb and flow of cargoes and the demand for them.
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Meanwhile Caspian CPC Blend and Azeri Light in the Mediterranean are weakening and there’s a big volume of Nigerian crude that’s yet to find buyers. Derivatives tied to physical markets have weakened significantly in recent weeks.
At least five traders said the weakness was because of elevated flows of US crude. Deliveries are starting to accelerate as European refineries begin returning from routine seasonal maintenance.
The softness in the so-called Atlantic Basin region was partly due to a rebound in US exports to Europe after a dip in April. Narrowing profits for making diesel are also curbing the premiums refineries are willing to pay for crude, which has also dragged lower markets in Asia.
Macquarie Group warned this week that the chances of prices holding below $80 a barrel are rising after the market’s recent bearish lurch coincided with a reduction in geopolitical risk premium following tensions between Israel and Iran.
Even so, most traders and analysts still expect prices to rally in the coming months as a seasonal uptick in summer gasoline and jet fuel demand boosts refinery processing and tightens crude markets.
Supply for sour crude in Europe is likely to be tight after Saudi Arabia and Iraq raised their official selling prices for June by the biggest amount since September. Although sour crude only accounts for a small portion of crude intakes in Europe, some refineries may switch to low-sulfur crude, lending support to the prices.
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