Oil & Gas
Added Feb 24, 2022

Light-sweet crude prices soar amid Europe’s thirst

Share this article
Vortexa Newsletter Subscribe and get Vortexa news straight to your inbox

European refiners are chasing after light-sweet crudes amidst a confluence of rising regional and export oil demand, stubbornly high natural gas prices and tight crude supplies. Voracious appetite from the refiners have propelled prices of light-sweet crudes in recent weeks despite stronger exports from Libya, US and West Africa this month. As sweet crude premiums continue to test historical highs, it raises questions as to whether product prices are catching up fast enough to support this price momentum.

Light-sweet grades lead higher imports into Europe, majority headed for short-term storage

Crude arrivals into Europe saw an uptick of 700kbd in the first two weeks of February, led by higher light-sweet imports. The majority of the incremental volumes had accumulated in storage, that led to regional onshore crude inventories rising by 420kbd during the same period, with an almost equal rise in the refinery and commercial storage volumes. Given the strong crude market backwardation and upcoming refinery maintenance next quarter, refiners are likely to process these additional barrels in the near-term instead of stockpiling them.

Europe crude imports_chart-1

Europe crude imports (LHS, mbd) and onshore crude inventories (RHS, mb)

West African light-sweet grades fetch higher premiums than Libya’s

Looking at crude loadings, the increase in light-sweet crude volumes loaded and heading to Europe this month is even stronger. Combined exports from Libya, West Africa and the US to the region are up by over 500kbd so far this month compared to January, with West African supplies recovering from its dip and accounting for nearly 50% of the growth. Outsized demand for West Africa’s light crudes has pushed up their premiums against Brent, with Qua Iboe trading at $2/bl above dated Brent this week, double that in end December, according to Argus’ prices. Comparatively, Libya’s Es Sider which is of similar API quality and lower sulphur content, is trading near parity to Brent, similar to December.

The ramp up of US refinery maintenance this month has increased the country’s light-sweet crude availabilities, with volumes to Europe projected to rise by around 120kbd month-on-month in February. Higher crude loadings have mostly benefited Atlantic Basin Suezmax employment, with upsides to Aframax utilisations capped. But falling Aframax availability for a 10-20 day fixing window, ex Houston, has supported TD25 US Gulf to Mediterranean rates in recent weeks. US crude exports to Europe are likely to remain elevated till April, when the US refiners return from maintenance.

Light-sweet crude loadings to Europe_chart

US, Libya and West Africa light-sweet crude exports to Europe (mbd)

Light-sweet price momentum hinges on Atlantic Basin demand

Atlantic Basin gasoline demand is a key ingredient behind European refiners’ light-sweet crude appetite. Increased West African demand (for storage replenishment) and an anticipated rise in summer-spec gasoline demand in the months ahead is likely the driving force behind European refiners’ fervent crude purchases in recent weeks. But as sweet crude premiums continue to rise, the higher costs of gasoline production will eventually be passed on to consumers through higher pump prices, posing downside risks to demand sentiments ahead.

 

More from Vortexa Analysis

The latest news

May 19, 2022
Freight
blog-events
name
Listing_Summary-Vortexa_July2019

In this insight, Vortexa examines the current status-quo for VLCC rates, and provides an outlook of whether the repositioning to the Western hemisphere can prove to be supportive in the months to come.

subscribe_insight-form
blog-tag
location
banner_bg
getintouch-section
post_body
May 10, 2022
Freight
blog-events
name
Listing_Summary-Vortexa_July2019

Clean tanker rates in the East of Suez have remained at a high level despite erratic demand in the region. The main driver of this situation lies on the supply side. In this insight we dive into the dynamics behind rates in the East, and link the chain of events to trace the freight rate trajectory.

subscribe_insight-form
blog-tag
location
banner_bg
getintouch-section
post_body
May 5, 2022
Oil and Gas
blog-events
name
Listing_Summary-Vortexa_July2019

As China's crude import appetite slows, crude producers are now competing for a smaller pie. Who will be the winners and losers in this race?

subscribe_insight-form
blog-tag
location
banner_bg
getintouch-section
post_body

Get in touch today for a free trial

Request a demo