The European and African oil markets are showing increased signs of tightness, with some crude differentials hitting record highs as peak summer demand approaches and Asia competes for supplies to offset shortages caused by Iran’s blockade of the Strait of Hormuz, now in its fifth week.
The Iran conflict has forced the shutdown of at least 10 million barrels per day of oil from the Middle East due to Iran’s effective closure of the strait and attacks on energy infrastructure across the region.
That production volume represents at least 10% of global daily oil consumption. Asia has been most affected, as the continent is the world’s largest oil importer and relies heavily on Middle Eastern supplies.
The Dubai oil benchmark hit an all-time high of $169.75 on March 23, surpassing the previous Brent futures record of $147.50 set in 2008, making it the most expensive oil benchmark ever, Reuters reported.
Tightening markets are also evident in European crude. North Sea Forties crude surged to a $7.20 per barrel premium over dated Brent on Friday, the highest on record according to LSEG data.
Paper markets tracking North Sea physical prices reflect similar tightness. The first week of the short-term Brent swaps curve, known as contracts for differences, traded $12.35 a barrel above the contract six weeks ahead on March 27, also a record. Neil Atkinson, former head of the oil markets division at the International Energy Agency, said, “Globally, there are fewer barrels available, so the people who need them are bidding prices up.”
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Shortages and competition from Asian buyers are driving up prices for European customers, according to Morgan Stanley analysts.
“The supply being diverted east is coming out of the pool that Europe would otherwise use to balance itself,” the analysts said, noting that more oil from West Africa, which can supply either European or Asian buyers, is now heading to Asia.
On Monday, U.S. WTI Midland crude, which influences the dated Brent benchmark, traded at a record $9.50 per barrel premium for delivery to Europe, nearly $8 higher than before the war began.
Crude and product shipments from Europe, Angola, and Nigeria to Asia are expected to rise by about 200,000 barrels per day in March from February, reaching 3.72 million bpd, according to Kpler.
Some fuel shipments have even been rerouted away from Europe toward Asia and Africa, highlighting intense global competition for limited supplies.
Four tankers carrying 168,000 tons of U.S. diesel and gasoil have diverted to South Africa in recent weeks, while at least four other tankers carrying a combined 430,000 tons of Middle Eastern and Indian diesel in late February to early March began sailing toward Europe but turned toward Southeast Asia, consultancy Energy Aspects reported.
European gasoline cargoes are also increasingly heading to Asia following a surge in Asian prices, and Asia is taking more crude shipments from both Europe and West Africa, according to trade sources and shipping data.
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Image Credit: Reuters
