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February total seaborne loadings were down by 1.45 mb/d m/m to 44.97 mb/d as OPEC Middle Eastern producers continued to curtail exports, led by Saudi Arabia and the UAE, whose export volumes dropped by a combined 0.62 mb/d m/m. Venezuelan exports also fell, by 0.16 mb/d, largely to the USGC, following US sanctions. With most of the unplanned outages and planned OPEC cuts affecting sour supplies, buyers sought out alternative medium and heavy crudes. A decent level of planned refinery turnarounds—including 4.86 mb/d in February, 6.95 mb/d in March and 7.1 mb/d in April (when February loadings will land)—prevented the drop in supply from becoming overly bullish for crude oil prices.
March should continue to see a drop in seaborne export volumes as Saudi Arabia further reduces exports, and it will be increasingly difficult for Venezuela to find outlets for its crude. Partially offsetting this will be higher volumes from Iran as Asian buyers increase purchases ahead of the 5 May deadline for renewal waivers, when there is considerable uncertainty as to whether waivers will be renewed or not. Light grades will continue to be plentiful with Libyan exports rebounding—after a force majeure was lifted at El Sharara—and with US exports growing. Even the 6 mb US strategic petroleum release was of sweet crudes.
Despite heavy refinery maintenance associated with March lifters—including Chinese TARs above 1 mb/d in both April and May—March differentials have remained steady due to the ongoing upstream supply disruptions. However, the mismatch in crude oil quality continued. Heavy and medium barrels were scarce while light sweet crudes are plentiful, narrowing sweet-sour spreads further.
April volumes should be in line with March volumes ahead of the OPEC meeting in April, although there is downside risk to this figure if Asian buyers stop lifting Iranian crudes (since these would arrive in May) due to the complete lack of clarity from the US administration. Nonetheless, with Chinese buyers waiting on the sidelines due to high crude stocks in China and rising differentials for heavies and mediums, demand for April loaders will be relatively subdued.
For May programmes, demand should pick up marginally as refiners conclude maintenance and markets exit the shoulder demand season. The real pick-up in demand will be for June loaders as not only do many refiners exit works, but new refineries are also ramping up. Since many have termed sour crudes and with spare capacity mostly light, other customers will experience supply cuts and be forced to seek alternatives just as Iranian uncertainty intensifies.
With the hunt for quality well underway, global refiners have become savvier in their choice of slate, prompting more atypical movements. IMO 2020 will reinforce these shifting refinery diets. Europe has already increased its intake of US light sweet barrels, in part to compensate for falling Middle Eastern supplies but also to test refinery capability ahead of IMO 2020. At the margin, IMO 2020 will ease price support for sour barrels and favour sweet crudes’ prices. However, as majors take greater control of areas like the Permian—as shown by ambitious growth plans from both Chevron and Exxon—the growth in the light sweet crude supplies is far from over. The problem of a lighter crude slate is set to continue.