European refiners are feeling the pinch from purchasing sour crude grades at higher prices, hurting already weakening refining margins as US sanctions upend traditional trade flows into the region. Refineries in the region are often complex and rely on a diet of heavy and medium sour crudes such as Russia’s Urals, Iraq’s Basrah Light, UK’s Forties and Saud Arabia’s Arabian Light.
But US sanctions on Iran and Venezuela’s state-owned PDVSA have meant less heavy sour crude is being exported to Europe. OPEC and non-OPEC cuts are also reducing crude flows to this region, putting pressure on refining and pushing prices for medium sour crudes to multi-year highs. “Looking ahead to April and May it will also be interesting, given that the Venezuelan is gone, and Iran waivers will [likely not be extended],” said a crude trader, adding that the crunch looks to be even more extreme in the coming months.
“Overall, heavier crudes do very well – heavy North Sea grades, Urals, also we heard heavy sweet from WAF [West Africa] are seeing good deals because the sour market is tight,” he added. Refining margins have weakened in the past month, weighed down by a weaker gasoline and light-ends complex. Fuel oil remains unseasonably robust and middle distillate crack spreads have been strong, but demand for crudes of this quality are still in strong demand. Imports of Iraqi crude oil such as Basrah Light and Basrah Heavy, which is very popular amid European refineries, have also been lower recently as OPEC members have been diverting some of these barrels to Asia.