Executive Summary

Atlantic Basin: Mexican barrels plunged further on their downward trajectory amidst abundant supply, as Pemex remains far from commencing operations at the Dos Bocas refinery. Exports from Canada’s TMX pipeline jumped, yet volumes remain at merely half of the pipeline's nameplate capacity.

Europe and FSU: Johan Sverdrup crude differentials have remained in stronger premium territory versus NSD this month amid a decline in arrivals of competing grades from Brazil, Guyana, and the Middle East.

Middle East and Asia: Seaborne oil exports from OPEC+ have cratered in June, down by a whopping 2.2 Mbd m/m. This is primarily due to a surge in Saudi domestic demand. With Russian runs also set to increase next month, exports of medium oil to Asia should remain in check this summer.

‍

Atlantic Basin: Delayed Dos Bocas refinery, TMX commissioning weigh on heavy crude market

Mexican crude oil prices continue to plummet in June as the country’s 340,000 barrels-per-day Dos Bocas refinery remains far from starting operations, indicating that the floodgate for Mexican barrels to the international market will remain open for the time being. Discounts for heavy sour Maya fell to as low as $8.7/bbl against WTI this week, a level last seen in May 2023, while Olmeca flipped to discounts against WTI for the first time since late March. A Reuters report this week revealed that the Dos Bocas refinery is unlikely to produce any commercially viable motor fuel before the end of the year. This aligns with our forecasts, which anticipate that the plant will only begin processing crude in Q4. As a result, Mexico's oil demand is expected to rise to about 1.1 Mbd by December, up from over 900 kbd currently. Crude exports from Mexico are poised at around 756 kbd in June, a decline compared to an unusual uptick in May, which was partly due to refinery outages in the country. However, June's export levels remain higher than those seen in April.

Mexican crude differentials against respective benchmarks, $/bbl

Source: Argus Media

Also exerting pressure on Mexican grades, particularly the heavy crude, is the increase in Canadian crude exports via the Trans Mountain Expansion (TMX). Shipments from Vancouver, where the TMX pipeline terminal is located, are set to reach 350 kbd in June, compared to around 30 kbd before the pipeline was operational. Even so, the export level was less than half of the nominal capacity, as refiners remain wary about the prices and quality of the high acidity crude. Of the June TMX exports, two Aframax-sized cargoes are en route to Sinopec’s Maoming refinery and PetroChina’s Qinzhou refinery, while three cargoes were loaded onto a VLCC via ship-to-ship transfer and are heading to Reliance’s Jamnagar refinery in India. The rest are taken by refineries in the US West Coast. The operator of the TMX is planning to lower the upper limits of the vapor pressure and total acid number at the request of shippers and refiners. China’s private refiner Rongsheng opted TMX crude against Middle Eastern and West African crude in its latest tender, awarding two Access West Blend at a discount of about $6/bbl against ICE Brent for September delivery. The Chinese refinery bought its first TMX crude at ICE Brent-$5/bbl earlier this month for August-arrival.

The heavy crude market could further decline once Ecuador’s 450 kbd OCP pipeline resumes operations in early July. The pipeline stopped pumping on June 17 due to erosion, prompting the state-owned oil firm, Petroecuador, to declare force majeure on Napo crude exports. Consequently, crude exports from the Latin American country are set to hit a 26-month low at around 257 kbd. Elsewhere in the Americas, Brazil’s crude shipments are also on track to plunge in June, down by around 490 kbd m/m to 1.4 Mbd, partly attributed to production issues with some FPSOs at Tupi field.

Across the Atlantic, production of Nigeria’s medium sweet Nembe crude has resumed on Sunday. Local upstream company Aiteo shut output from the onshore lease OML 29 last week after an oil leak was observed on June 17. The production hiccups do not seem to have major impacts on regional oil prices, as the West of Suez sweet crude market remains largely oversupplied. Countries such as Nigeria and Gabon are boosting exports, but demand from Europe has not yet fully recovered. Nigerian crude prices have only slightly recovered from their multi-month lows recorded in early June and are still far from returning to the high levels seen in Q1. Thin margins across the globe have dented buying interest from refiners, limiting the price recovery. But looking ahead, Nigerian barrels should find some supports as Pertamina, a major WAF crude recipient, is likely to restart its 360 kbd Balikpapan refinery in July. Meanwhile, Nigeria’s 650 kbd Dangote refinery is expected to start producing gasoline in Q3 following the commissioning of its RFCC unit. Dangote’s crude imports surged in June, increasing by 157 kbd m/m to 385 kbd. This includes a steady flow of 234 kbd Nigerian crude, 135 kbd WTI Midland and an Aframax cargo of Meleck crude produced in Niger. A fire broke out at Dangote's effluent treatment plant this week, but operations at the refinery was unaffected.

Europe and FSU: A decline in European imports of medium-density grades is keeping Johan Sverdrup diffs supported

Sweet-sour spreads across Europe have remained wider over the past month amid a decline in imports of medium density grades, with crude availability across several regions, including Brazil, Guyana and a number of Middle Eastern producers, coming increasingly under pressure.  

When it comes to the Middle East, crude exports from the largest producers have been easing strongly so far this month, with combined flows from Kuwait, Saudi Arabia, Iraq, and the UAE remaining on pace to ease by around 1 Mbd in June. The decline in exports from the latter countries is a result of several factors, including seasonally rising crude demand, an extension of OPEC cuts, and a rise in crude burning for power generation, which have all contributed towards lower flows this month. In fact, exports from the above-mentioned countries to Europe have been averaging only 600 kbd so far this month, which represents a decline of around 300 kbd m/m and marks the very bottom of the two-year range. This is a trend that should continue over the summer months, which should keep regional medium-density crude markets tighter.  

This compares to what we have been observing across LatinAm where output from Brazil has been coming increasingly under pressure so far in June. In fact, crude supply from the Tupi field is expected to ease between 200-300 kbd m/m this month and the next amid issues at two FPSOs. This will keep exports from Brazil under pressure over this period, a trend we have already observed in June, with total seaborne crude flows from the country averaging a mere 1.5 Mbd, which represents a decline of 400 kbd m/m and marks a one-year low. This is coming at a time when crude production from the Sepetiba FPSO in the Mero field has remained below expectations, which has led to a delay in departures, and has contributed towards lower Brazilian exports, too.

Considering the above, crude differentials for the European medium-sour crude, Johan Sverdrup, have remained the largest beneficiary, with the grade remaining at a strong premium of around $1.50/bbl at the time of writing (see chart below), even reaching a multi-month high over around $2.20 earlier in the month. Considering that output from the Tupi field is expected to remain pressured until August, we could see European sweet-sour spreads remain wider than normal for the time being.  

Regional sweet-sour spreads, $/bbl

Source: Argus Media

Looking beyond the coming months, we see a decline in Middle Eastern crude burning, as well as a return in supply from the Tupi field, and a relaxation of OPEC+ production cuts, keeping exports of medium-density grades supported, which could see sweet-sour spreads tighten once again. However, part of this will be offset by field maintenance in Guyana, with Exxon expected to pause some production at two platforms to connect these fields to a new pipeline, which will assist in bringing associated natural gas onshore. In fact, we estimate that Guyana’s crude supply will average only 580 kbd in August and some 480 kbd in September, with the latter representing a decline of around 150 kbd versus current levels.  

Guyana has emerged as an important source for European refiners, with flows even reaching a peak of 470 kbd in March of this year. Nevertheless, crude exports from the country to Europe have been easing almost continuously since, with exports via this route averaging only 230 kbd so far this month, which represents a decline of some 130 kbd m/m and marks the lowest level since November 2023. Considering the expected decline in output over the summer months, we should see exports from Guyana to Europe remain pressured and below average in August and September, too.  

Middle East and Asia: OPEC+ exports to Asia crater in June as Saudi and Brazilian domestic demand surge

Preliminary data indicates that oil exports from the OPEC+ group, including exempt countries Iran, Libya, and Venezuela, decreased by a whopping 2.2 Mbd in June compared to May. This decline is primarily due to reductions in Saudi shipments, which fell by 850 kbd to 5.5 Mbd (including flows out of the Neutral Zone), and lower Brazilian exports, which decreased by 358 kbd to 1.54 Mbd.

OPEC+ seaborne oil exports variation in June m/m, kbd

Source: Kpler

We anticipated this decline for a few weeks already. Saudi oil exports have significantly dropped this month due to surging domestic demand. Refinery runs increased by 207 kbd to 3.25 Mbd, supported by the return of SASREF’s two 150 kbd crude distillation units (CDUs) and SATORP’s 200 kbd second CDU from maintenance. Additionally, temperatures in Riyadh have risen to nearly 50°C, sparking increased crude burn, which we estimate has risen by 81 kbd to 553 kbd this month. We expect both refinery runs and crude burn to continue rising next month, but only by a combined 110 kbd, which will limit any potential rebound in crude exports.

The other major reduction comes from Brazil. About half of the country’s exports, or 912 kbd ytd, are heading to Asia. The reduced availability of Brazilian crude will impact medium sour differentials in Asia given the decrease mainly involves medium sweet grades such as Tupi, which shipments to Asia fell by 82 kbd to 158 kbd, and Sururu, which declined from 132 kbd last month (mainly headed to northeast China) to zero in June thus far.

This situation arises as most Middle Eastern exporters of medium sour and medium sweet grades to Asia have also reduced shipments this month. Iraq's exports of Basrah crude have decreased by 356 kbd to 3.24 Mbd, marking the country's lowest level since March 2023 when shipments out of Ceyhan were first halted. This reduction coincides with increased scrutiny on Iraq following a rebound in Kurdish oil production. Similar to Saudi Arabia, higher crude burn levels (we estimate a jump of 37 kbd m/m) is also contributing to this decrease. However, it is more likely that the reduction is mainly due to export cuts implemented by SOMO.

Additionally, exports of Kuwaiti and Iranian crude, which are almost exclusively destined for Asia, have decreased this month by a combined 413 kbd. We estimate Iranian oil exports to have dropped by 250 kbd to 1.29 Mbd, although this assessment might change as more information becomes available. It is unlikely that the latest US sanctions or the upcoming presidential elections on Friday, June 28, will impact Iran's oil production and exports.

However, Asia’s medium sour pricing benchmark has remained relatively stable. Dubai's three-month curve has averaged $0.98/bbl in the past week, steady w/w, but significantly lower than the $1.38/bbl in late May and over $2/bbl in late April. Despite this stability, we anticipate that Dubai's backwardation will steepen due to low supply this summer. As mentioned earlier, Saudi oil exports are unlikely to rebound much because of increased refinery runs and crude burn.

Furthermore, a rebound in Russian refinery runs is imminent. While we expected June refinery throughput in Russia to gradually increase ahead of peak summer demand, runs remained within the 5.25-5.3 Mbd range, consistent with May trends. However, the 240 kbd Tuapse refinery and the 360 kbd Nizhny Novgorod refinery are expected to fully resume operations following repairs, boosting Russian refinery runs to 5.6 Mbd in July-August. This increase in refinery activity will likely reduce Russia’s seaborne oil exports from the 3.55 Mbd seen in June to around 3.2-3.3 Mbd.

Key oil market structures, $/bbl

Source: Argus Media

‍

^{Did you know?}‍

Our analysts share this type of research on a daily basis via Kpler’s Insight service.

Through unbiased, expert-driven research and news, you’ll receive valuable information on supply, demand, and market movements, enabling you to make informed trading and risk management decisions.

If you haven't explored the service yet or would like to dive deeper into data from this report you can book a demo here.

‍

‍