With more cars taking to the roads as coronavirus lockdowns ease, demand for lighter, sweeter oil more suitable for refining into gasoline is ticking up, as reported by Reuters.
European refiners especially are moving away from sour varieties like Russian Urals, which have risen in price since a supply cut pact by producer countries made the grades scarcer, towards alternatives such as U.S. West Texas Intermediate (WTI), West African grades, CPC Blend and Azeri oil.
“Many discounted barrels from the U.S. are arriving in Northwest Europe,” one European importer of both Nigerian and U.S. oil said.
“Demand is increasing from a bottom in April, and in July and August demand should be higher,” they added.
(Graphic: Northwest European gasoline stocks, here)(Graphic: European gasoline refining margins, here)
Although gasoline stocks in northwest Europe remain not far from all-time highs and refining margins are still in the doldrums, they fell by almost 9% in the week to Thursday in the third consecutive weekly drop.
The bargain price of lighter, sweeter crude is hard to refuse.
“Refiners are switching to sweet. And the arbitrage is open, so WTI is being offered in the Mediterranean and Asia with (strong) demand,” another trader said.
Nigeria in particular hopes that slow sales brought on by volatility and long transit times to key markets will soon end.
Mele Kyari, head of the Nigerian National Petroleum Corporation, said in June that the country’s oil would be the “grade of choice” with the rise in consumption being driven by gasoline-rich crude.
Still, flows from West Africa’s top oil exporter to Europe have been the lowest in two years, according to Refinitiv Eikon data, while volumes of cheaper U.S. light oil hover near all-time highs.
But with WTI prices firming in Europe to around $1 above dated Brent, Nigerian grades at around the same price are coming into play, traders said.
Meanwhile, CPC Blend is expected to sell at a premium to dated Brent with traders expecting a reduction in export volumes.
Additional reporting by Olga Yagova in Moscow; Editing by Kirsten Donovan and David Evans
