RPT-Europe awash with quality oil as U.S. imports fall
Imports of Iraqi crude are shrinking but at a slower rate. February imports were 271,000 bpd, nearly a one-year low, far below the average for the last four years of 480,000 bpd, EIA data showed.
Graphic for crude oil price differentials
Graphic for U.S. imports of various crude grades
HISTORIC SEAWAY REVERSAL
U.S. imports from Africa and the Middle East will fall even further in the months to come owing to the reversal of the Seaway pipeline, which unlocked a crude supply glut in the U.S. mid-continent for Gulf Coast refiners.
Seaway's initial flows will be 150,000 barrels per day, expected to rise to 400,000 barrels per day. BP was already offered two 500,000 pipeline cargoes of U.S. sweet crude from Cushing, Oklahoma, just prior to the pipeline's reopening.
"With the U.S. domestic production rising, we are seeing the arbitrage drying up," a trader in West African crude said.
U.S. data shows oil imports from Nigeria fell to 352,000 bpd in February, the lowest since December 1996, compared with 948,000 bpd a year earlier.
In late April, differentials for Nigeria's Qua Iboe grade BFO-QUA hit multi-month lows as traders cited slack U.S. demand.
U.S. consumption of Iraqi Basra Light grade is in decline just at a time when the country is trying to boost exports.
Traditionally, the United States and Asia are the main buyers of the grade, loaded from Iraq's Middle Eastern Gulf terminal, with a smaller share heading to Europe.
The picture will be however different in June as a plunge in Brent futures has prompted traders to take more Basra Light into Europe to capture a price advantage.
"There are 7 million barrels of Basra Light in storage at Sidi Kerir at the moment plus there is more to arrive still in May," said a trader. "A big volume of crude was initially destined for the U.S."
Iraq's offical selling prices (OSPs) for Europe are priced off Brent. The bill of lading is decided 15 days forward with payment not due until within five days after that period. As a result, traders can boost profits when sentiment on futures is expected to stay bearish.
On the other hand, Basra Light destined for the U.S. is priced off the Argus Sour Crude Index, a monthly average, which does not allow traders to take advantage of a drop in futures.
"I expect an additional 150,000 to 300,000 barrels per day of extra Basra Light hitting the Mediterranean in the second half of June," one trader said.
ASIA STEPS IN
Asian buyers have been quick to take advantage of the price falls on sweet grades.
At least 6 million barrels, double the usual amount, of Algeria's Saharan Blend is heading to Asia in May as Chinese refiner Unipec, an opportunistic buyer, bought a 2 million barrel shipment citing cheap prices.
Algeria's state oil company Sonatrach is also taking some crude to its storage facility in South Korea, market sources said.
Destinations of Libyan crude grades have also shifted. Asia, and India in particular, has become a new major destination. Indian tenders for light sweet crude are now often filled with Libyan grades such as Mellitah, competing with Nigerian grades.
Most recently, Vietnam has joined the ranks of Libyan crude buyers. PV Oil bought a cargo of Libyan Amna for June arrival.
PV Oil bought 600,000 barrels of Amna crude from European trader Glencore to be delivered in the first half of June, the sources said.
Exports of Azeri Light to Asia have risen in May to 6 million barrels up from the more usual 3 million, traders said.