London — European refiners are likely to be preparing to switch crude slates and start importing sweet barrels instead of sour, oil product traders told S&P Global Platts.
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Throughout the summer the market has been focused on running heavier barrels with a higher yield of fuel oil and heavy gasoil.
Strong cracks for the two have allowed refiners to keep secondary units topped up and running and kept margins healthy.
Crude barrels with a heavier residual cut have done well as a result, pushing sweet barrels into a lower but attractive pricing level against Dated Brent.
Physical crude oil cargoes typically trade 10-55 days ahead. Buying sweet barrels now could see margins and cracks change from late August to early October.
The Mediterranean is one of the most competitive crude markets in the world and one of the most competitively priced, giving refiners in the region the benefit of being the first to take advantage of fundamental shifts in the complex.
"If you can make that stitch, then of course the switch will happen," a trader said on refiners changing their crude slate from sour to sweet.
"In September and October the [products market] will switch from summer to winter spec," he said, adding that there would soon also be an incentive from the end-user market for refiners to adjust their crude purchasing programs.
"Bilbao, Tarragona and [some refineries] in the Amsterdam-Rotterdam-Antwerp region are already in the process of switching," a second trader said.
The good availability of light, sweet crude could also be a factor in the switch, with Libya's crude grades returning to the international export markets in August, after seeing disruptions in June and July.
Alongside light, sweet Libyan crude, a sluggish arbitrage flow to Asian refineries for naphtha-rich grades such as Kazakhstan's CPC Blend and Algeria's Saharan Blend has kept a lot of volume in the region, leaving refineries split for choice among sweet barrels.
As a result, prices have stayed low for both grades, with S&P Global Platts pricing Saharan Blend at a 50 cents/b discount to the Mediterranean Dated strip, and CPC Blend at a discount of $1.75/b.
In contrast, Russia's medium sour Urals grade is pricing at a discount of $1.15 to the Mediterranean Dated Strip- 60 cents/b above the much lighter CPC Blend, demonstrating the weakness in the European sweet crude markets, said traders.
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