U.S. crude oil exports to Europe hit a two-year low in June

By Georgina McCartney and Robert Harvey

HOUSTON/LONDON (Reuters) – U.S. crude shipments to Europe fell to a two-year low in June as European buyers snapped up cheaper regional and West African oil, traders and analysts told Reuters.

U.S. crude oil exports to Europe slowed to 1.45 million barrels per day (bpd) last month, the lowest level in any month since July 2022, according to ship-tracking firm Kpler. This marks a 14% decrease from May and a 27% decrease from June 2023.

The decline came as the spread between the price of US benchmark WTI crude and European benchmark Brent crude narrowed, as Brent futures fell at a faster pace on average in May than WTI as crude oil from the North Sea weakened.

A narrow spread between the two makes it difficult to turn a profit by shipping US crude to Europe.

Total U.S. crude oil exports to all destinations were 3.94 million bpd last month, down from 4.21 million bpd in May.

Most of the exports to Europe were WTI Midland crude, which became a staple of European refiners’ crude diets. The US became a major oil exporter thanks to the rapid increase in production that came with the shale revolution.

Rising WTI flows to Europe have led pricing agency S&P Global Commodity Insights to include the grade in its benchmark Brent oil price index in 2023, meaning fluctuations in US export volumes may have a wider impact on global oil prices.

THE AUTUMN

West African grades were cheaper in May on a supply glut as Africa’s top crude exporter, Nigeria, struggled in April to offload cargoes for May loading, prompting some sellers to cut offers.

Nigerian Bonny Light spreads against Dated Brent have been on a downward trend for the past two months, said Gus Vasquez, US crude editor at price index agency Argus Media.

That has made West African crude more attractive than U.S. crude, said Patricio Valdivieso, Rystad Energy’s vice president of oil market research.

The story continues

A narrower WTI-Brent spread makes it cheaper for European buyers to import qualities dated on shorter voyages rather than the goods from the United States.

“The Dated complex has been quite weak, limiting Brent’s ability to price marginal US sweet,” said Energy Aspects analyst Richard Price.

In May, when June-loaded commodities would have traded, the WTI discount to Brent narrowed in 15 of 23 sessions and hit its lowest level since October at -$3.95 a barrel on May 30, LSEG data showed .

Factoring in transportation costs, the WTI-Brent spread typically needs to average $-5 to $6 a barrel for transatlantic arbitrage to be profitable, said Gus Vasquez, Americas crude editor at the agency. of Argus Media prices.

THE JULY REBOUND?

Falling WTI Midland exports and a buying spree by trading firms Gunvor and Trafigura have tightened the European market in recent weeks. This is likely to lead to a recovery in US exports to Europe in July and August.

“The drop in US crude exports has supported Brent,” said veteran oil trader and director of Surrey Clean Energy Adi Imsirovic.

A stronger dated Brent market also coincided with a weakening in crude oil prices in Asia.

“WTI Midland arbitrages are now viable in Europe but incredibly weak in Asia, which we expect to redirect WTI Midland exports to Europe in July and August,” Energy Aspects’ Price said.

Weaker prices for UAE Murban crude are underpinning Brent and WTI-linked crude prices in Asia, according to Sparta Commodities analyst Neil Crosby.

Rising output from Murban pressured prices for the grade, with the monthly average spot premium on benchmark Dubai Middle East quotes falling to a one-year low of 83 cents a barrel for August-loaded commodities.

(Reporting by Georgina McCartney in Houston and Robert Harvey in London, additional reporting by Alex Lawler in London and Florence Tan in Singapore Editing by Liz Hampton, William Maclean)