US Oil Exports to Europe Surge, Pushing Down Crude Prices

Key Takeaway

• US oil exports to Europe surge by a third, driving down prices of European and West African crudes as peak demand season approaches.
• Increased US crude flows and narrowing diesel profits contribute to weakening physical oil markets in the Atlantic Basin and Asia.
• Despite current price pressures, expectations for a summer demand uptick and tighter sour crude supply could support future rallies.

US Oil Exports Surge, Pressuring Global Prices

In a significant shift in the oil market dynamics, US oil exports have seen a notable increase, with shipments toward Europe rebounding to at least 2.1 million barrels a day in the first 23 days of this month. This marks a one-third increase from the average flow rate in April, according to tanker-tracking data compiled by Bloomberg. The surge in exports has led to a decrease in the prices of physical crudes across Europe and West Africa, potentially offering relief to consumers as the peak demand season approaches. WTI Midland, a dominant US grade in Europe, has fallen to its lowest level in more than a year, impacting the global physical oil benchmark Dated Brent.

Market Dynamics Shift Amidst Increased Supply

The increase in US crude deliveries to Europe, coinciding with European refineries returning from seasonal maintenance, has contributed to the softening of prices in the Atlantic Basin region. This trend is further exacerbated by narrowing profits for diesel production, affecting crude premiums and dragging markets lower in Asia as well. The physical oil markets have shown signs of weakening, with contracts for difference flipping back into a bearish pattern. At least five traders attribute this weakness to the elevated flows of US crude, indicating a significant shift in market dynamics.

Geopolitical Tensions and Economic Indicators Influence Markets

Despite the current bearish trend, Macquarie Group has highlighted the rising chances of oil prices holding below $80 a barrel, influenced by a reduction in geopolitical risk premium following eased tensions between Israel and Iran. However, the expectation of a rally in oil prices remains, driven by seasonal upticks in demand for gasoline and jet fuel. Additionally, sour crude supply in Europe is expected to tighten after Saudi Arabia and Iraq raised their official selling prices, potentially supporting low-sulfur crude prices.

Street Views

• Macquarie Group (Bearish on oil prices):

  "The chances of prices holding below $80 a barrel are rising after the market’s recent bearish lurch coincided with a reduction in geopolitical risk premium following tensions between Israel and Iran."