Algerian crude oil exports to see steep drop in June

New York — • June loadings could fall as much 25%

• Light, sweet Saharan Blend has been weak, reflecting weak naphtha

• Algeria to keep output to 816,000 b/d in May, June

Algerian crude oil exports in June are poised to be up to a quarter below first-quarter levels, a source close to the matter said, citing the commitment made by Africa's third-largest crude producer in the latest OPEC+ deal.

"It will be a very tight month," the person said. "The usual, minus the OPEC quota," the source said, referring to the agreement under which Algeria agreed to reduce production by 241,000 b/d from a reference level of 1.057 million b/d.

Another trader said the production cuts had not been applied to the May program for Saharan Blend when it was circulated just under a month ago.

"At the time the cuts were agreed the [May] export program had already settled," the source said. "There was no impact on the IOCs," the source said, referring to international producers operating in the country.

Saharan Blend weakness

Sources also said Algeria's 330,000 b/d refinery was going into maintenance this month, which could explain why the export fall may not be as dramatic in May.

Algeria exported around 580,000 b/d of its light sweet Saharan Blend in 2019, according to S&P Global Platts estimates. The grade ships from Arzew, Bejaia and Skikda to buyers in Europe, as well as Australia, India, Indonesia and the US.

The popularity of Algeria's flagship export grade Saharan Blend has waned in recent months as the COVID-19 pandemic has had a profound impact on demand for gasoline and middle distillates.

Saharan Blend, a very light and sweet which yields a lot of gasoline and naphtha, has seen its value hit multi-year lows recently.

Traders said the grade has been trading at a steep discount to its official selling price, which national energy company Sonatrach last week cut by 75 cents/b to Dated Brent minus $2.50/b for May.

In the middle of April, one source reported a trade at a discount of more than $8/b against the benchmark, saying there was an overhang of sweet crude in Europe. Crude from the US, especially WTI, is often seen as a close substitute for the grade.

OPEC + cuts

Algeria, which holds the rotating OPEC presidency this year, was among the first to urge fellow members to forge an agreement on production cuts since the March 5/6 OPEC+ meeting fell apart and led to a Saudi-Russian oil price war.

The 23-country OPEC/non-OPEC coalition known as OPEC+ agreed to cut output by 9.7 million b/d for two months from an agreed baseline level starting May 1. These countries will also cut 7.7 million b/d between July and December and 5.8 million b/d from January 2021 to April 2022.

Algeria has committed to keeping its crude output at 816,000 b/d in May and June, a decrease of 241,000 b/d from its baseline of 1.057 million b/d. From July through December it will pump 864,000 b/d, while from January 2021 through April 2022, it will cap production at 912, 000 b/d, under the agreement.

In early April, energy minister Mohamed Arkab called for immediate implementation of OPEC+ cuts to rebalance a market upended by COVID-19.

Algerian crude output averaged 1.01 million b/d in the first fourth months of the years, according to Platts estimates.

Oil production in the country -- which peaked at 1.4 million b/d in mid-2008 -- has been on a downward spiral over the past few years, exacerbated by a lack of new oil finds after years of declining foreign investment.

Crude production averaged 1.02 million b/d last year, its lowest since 2002.

Sonatrach owns more than 75% of Algeria's hydrocarbon production, according to the US Energy Information Administration. Cepsa, Eni, Repsol and Total are the largest foreign partners for Sonatrach's business. Occidental last year agreed to sell its stake in the country's production to Total.

A Sonatrach representative did not respond for a request for comment about whether the company planned to cut exports in June.