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Waterborne exports are unlikely to rise substantially from current levels after OPEC ministers agreed to roll over their share (0.8 mb/d) of the existing 1.2 mb/d OPEC+ cut for nine months, while Russian production will remain capped until the Druzhba situation is fully resolved. Iranian loadings have been lower than many expected amid fierce enforcement of US sanctions. Iran has responded to US sanctions by threatening tankers in the Strait of Hormuz. Following the attacks on six tankers over May and June, insurance and shipping costs have risen sharply and have slowed transit times through the Gulf.
Higher US loadings due to rising production alongside higher Mediterranean loading programmes will only slightly offset reductions across the globe from September onwards. Moreover, even though discretionary refinery run cuts in both the Atlantic and the Pacific are set to subside after several unplanned refinery issues, including the PES closure, boosted margins, autumn maintenance lies just ahead. So refinery demand for crude is also set to ease, limiting crude on water.
A notable WAF overhang pressured European prices, especially after PES started to resell the crude they had already bought after they decided to close down the refinery, but that overhang has begun to subside and should clear as Chinese teapots are starting to return to the market for late September cargoes.
Middle Eastern OSPs were set lower for Europe, making Arab Medium and Basrah Light attractive to Urals in Europe. MEH and CPC remain open into Europe with the grades having similar netbacks. Conversely, higher OSPs into Asia have reduced the attractiveness of Arab Medium into the region, and lower Oman prices reduces the potential for Mars or Urals long-haul movements. US light crudes are still economic into many Asian refineries, but Forties is not attractive relative to Murban in Asia. Interestingly, niche grades like Thunder Horse in the USGC have made their way into Indian refineries, some for the first time.
Venezuelan crude has now made its way into Cuban refineries, with vessels changing their names and switching off transponders to evade US ire. Venezuelan crude is still making its way to India, China and to Repsol refineries but exports are steady at around 0.8 mb/d. Few sour grades look attractive in the USGC against Mars, but a tropical disturbance has knocked over 1.3 mb/d of USGC production offline, which should resurrect the need for sour imports.
IMO 2020 preparations are now fully underway with more refiners looking for heavy sweet barrels, especially from September onwards, widening the Brent-Dubai spread. LSFO is extremely strong, especially in Asia, where more refiners have begun producing on-spec VLSFO in preparation for the fuel specification change. This has boosted demand for Australian sweet crudes in particular. HSFO is strong at the front but weak along the curve, suggesting a weaker sour market ahead. With geopolitical uncertainties rising, many refiners are looking to diversify supplies or enter long-term contracts. South Korea termed up 20 years of inflows with Saudi Arabia and has taken several cargoes of the new American WTL grade as a substitute for Iranian condensate. India’s MRPL bought US Thunder Horse, while Thailand booked a US Bakken cargo.