London — The volume of US crude oil arriving into Europe, which has been rising of late, will pick up sharply in February, pressuring values for North Sea and Mediterranean grades.
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"There are a lot of US barrels coming over and landing in February, more than [has been seen in the past couple of months] due to Asia not pulling as much in the near future due to turnarounds," a crude trader said.
"It is going to massively affect the balance of crude and affect North Sea and Urals."
Trading and shipping sources estimated that 800,000-850,000 b/d of US crude will arrive into Europe in February, with the majority headed to Northwest European refineries, although a sizeable volume will go to Mediterranean destinations.
While the main crude grade continued to be light, sweet WTI Midland, sources said naphtha-rich Eagle Ford and medium sour Mars have also been offered to refineries.
Aside from refinery maintenance in Asia meaning some US crude has to find another home, other reasons for the rise in US crude flows to Europe include more supportive freight rates and the knock-on effect of long, weather-related delays transporting Black Sea-loaded oil through the Turkish straits.
Those ongoing delays have led to buyers looking elsewhere.
Earlier this month, three VLCCs were said by sources to have been placed on subjects to ship US crude to Europe.
US crude rarely moves to Europe in VLCCs, and the trend only started on December 24 when the VLCC Olympic Lady left Corpus Christi Lightering for Rotterdam.
Indeed, European refiners typically prefer Aframax-size cargoes and, to a certain extent, Suezmaxes which offer more flexibility than the larger VLCCs.
The Brent-WTI spread -- assessed at $8.55/b at the London close Wednesday-- has been less of a factor as it has largely remained within an $8.00-$10.50/b range since early September, S&P Global Platts data showed.
As for shipping costs, Aframax rates on the US Gulf Coast-UK Continent route have cooled down somewhat since early January. Platts assessed the route at Worldscale 115 Wednesday, down from a peak at w192.50 late last year.
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CPC AND URALS UNDER PRESSURE
The arrival of US crude has affected Kazakhstan's CPC Blend and Russia's Urals crude, which have started to see an impact on demand for February cargoes, trading sources said.
In Northwest Europe, medium sour Urals -- which differs in quality from most of the US grades, with WTI Midland not considered as a direct competitor -- has remained near multi-year highs even as the fuel oil crack has lost some of its previous strength, leading some refineries to consider running a sweeter crude slate.
"There has been some switching due to the flurry of US cargoes heading our way. WTI Midland is being offered at quite aggressive levels," one Urals crude trader said.
Meanwhile, CPC Blend in the Mediterranean has been facing headwinds from the Turkish straits delays, traders said. With US cargoes not facing those issues, some buyers have increased their US crude intake in February. As a result, CPC Blend will likely command lower prices in February.
"We see a lot of US grades coming and it will change dramatically the market in NWE and Med...CPC is already such long program, in barrels per day. I think we will see a decline in the premium for February cargoes compared to January," a second trader said.
Urals in Northwest Europe was assessed at a 15.5 cents/b premium to the Mediterranean Dated strip Wednesday, while CPC Blend was assessed at a 70 cents/b discount to the Mediterranean Dated strip.
NORTH SEA ASIA ARB OPENS OPPORTUNITIES
In the North Sea, barrels clearing to the East were helping make space for US barrels, traders said.
"It seems an armada of crude is coming in in February and March from the US," a source said.
In both Northwest Europe, WTI Midland was available around Dated Brent plus 15-30 cents/b for late February arrival, and market participants talked of slightly higher premiums in the Mediterranean.
BP bid for WTI Midland in the Platts Market on Close assessment process Wednesday, specifically for barrels landing in the first half of March. The bids, which were priced between Dated Brent flat and a 20 cents/b premium did not attract any sellers.
By comparison, North Sea's Forties was assessed at a 36.5 cents/b discount to the North Sea strip over the 10 days to month-ahead period, Wednesday.
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