More Middle Eastern oil may flow to Europe as China cuts imports

London — Key Middle Eastern producers are starting to divert some of their barrels to the West, especially to European refiners, as demand in Asia slides in the wake of the coronavirus outbreak.

Several sources told S&P Global Platts Thursday that more sour crude will flow to Europe in the coming months as Chinese refiners begin to cut runs and have asked for a reduction in terms volumes from their key oil suppliers. The bulk of these flows will come from Iraq and Saudi Arabia, they said.

"There will be plenty more [Basrah Light and other sour crude] barrels coming to Europe. Asian buyers will not buy as much," said a trader for a European refiner. "We have already received many offers. There's a destruction of demand over there. A lot more will end up in Europe."

The bulk of Middle Eastern crude goes to China and the East, but Europe is also a key buyer. Refineries in Europe are often complex and rely on a diet of heavy and medium sour crudes such as Russia's Urals, Iraq's Basrah Light, the UK's Forties and Saud Arabia's Arabian Light.

The coronavirus situation is continuing to dampen Chinese demand, with end-users saying they were lowering purchases amid reduced refinery runs.

Sour crude for Europe

Middle Eastern crude flows diverting to Europe "might happen -- I don't see how Asia is going to maintain the demand it had last month," one Asia-based trader said.

European traders also said despite an expected increase in the Official Selling Prices of some Middle Eastern grades, these barrels remained more economical than Russia Urals crude, which is of similar quality.

"Why should people buy Urals at Dated Brent minus $0.50/b when you can buy Basrah Light at Dated minus $5/b," another Europe-based trader added.

Around 700,000-800,000 b/d or 10%-15% of Saudi crude exports, travel to Europe, with France, the Netherlands, Poland, Greece and Spain making up the key demand hubs.

Roughly 600,000-700,000 b/d of Basrah Light and Basrah Heavy crude travel to Europe, with Basrah Light making up around two-thirds of the total amount.

A similar trend is being seen among some producers in Latin America too, which are reliant on Chinese demand.

Brazilian crude sellers were seen re-directing cargoes otherwise destined for China back to their own domestic system, to Europe and to elsewhere in Latin America.

The moves come days after Oman's oil and gas minister said he expected oil traders to divert sales of its crude to other markets if there is a slowdown in demand from its biggest customer China.

Oman is the most exposed Middle Eastern oil producer to China's crude demand, with sometimes more than 90% of its monthly sales going to the Asian buyer.