Iranian oil floating storage hits 4-months high as US sanctions tighten

Market & Trading Calls

Americas:

• Bullish on high-TAN TMX grades versus US-bound pipelines due to lower volumes and competitive freight costs, bearish on low-TAN TMX volumes from February onwards due to PADD 5 spring maintenance.
• Bearish on Maya differentials as Mexican exports hit 7-month high amidst persisting delays in Dos Bocas commissioning, defying plummeting production.
• Bearish on Canadian heavy sours in Houston due to weaker HSFO cracks in the US Gulf Coast, at least until Trump's inauguration which will rekindle discussion of Canada/Mexico tariffs.

Atlantic Basin - Europe and Africa:

• Bearish on North Sea differentials as weakness in European crude demand keeps regional prices pressured, with Forties consistently trading at a discount to Dated Brent.
• Bearish on Johan Sverdrup valuations due to medium sour competition from LatAm, Africa and sharply declining refinery runs in NWE over Q1.
• Bullish on differentials of Senegal's Sangomar grade amid a robust pull from China.

Middle East - Asia - Russia:

• Bullish on Dubai spreads as improved market sentiment and aggressive buying activity boosted December spreads.
• Bullish on Chinese import dynamics as elevated quotas for private refiners and refinery expansions signal stronger crude flows in 2025.
• Bullish on Iranian oil prices in China as stricter US sanctions constrained shipping capacity.

Americas: MX grades outshine US-bound pipeline prices even as outlook sours

The late-month spike widening of backwardation in Dubai has also found a reflection in Nymex WTI futures which saw the M1-M2 spread edge above $0.50/bbl for only the second time since late October. Similarly to Brent, trading in the prompt month has seen limited liquidity, with an average of 180k lots traded daily, down 30% compared to the November average. The positioning of hedge funds and other money managers underwent a structural change compared to the gloom and doom of October-November, adding 79 MMbbls of net length in the past two reported weeks. With this, the WTI net length held by hedge funds stood at 183 MMbbls equivalent in the week ended December 24, the highest since late August. Interestingly, there seems to be a classical pattern evolving into 2025 futures trading. Daily traded volume for the July and August contracts remains very subdued, staying below 10k/day for most of November-December. The September contract, on the other hand, has been witnessing traded volumes almost twice as big. This would seem to suggest that beyond an initial ‘Trump effect’, immediately after the US President-elect’s inauguration on January 20, there currently isn’t much to anticipate in the spring months.

Daily average traded volumes of May-September 2025 Nymex WTI futures contracts, lots.

Source: Nymex.

Mexico’s production figures continue to be in a freefall, with November output figures reported by CNH saw aggregate crude production fall below the 1.5 Mbd mark, a whopping 150 kbd y/y decrease at 1.488 Mbd. Pemex’s equity output stood at a mere 1.38 Mbd, fully in line with the abovementioned 150 kbd y/y drop. Keeping in mind the 20% q/q upstream budget cuts implemented by the new administration of Mexico’s state oil firm, spearheaded by Nestor Martinez back in October, this comes hardly as a surprise and will continue into Q1 2025 as well. We anticipate a further 20 kbd drop this quarter, with aggregate crude and condensate production consolidating around the 1.76 Mbd – for reference, November-December hovered around 1.78 Mbd. Despite a weak upstream performance, we expect Maya differentials to plunge lower after trading between -$7 and -$8/bbl discounts for the past month.  Fuel oil cracks in the US Gulf Coast dipped to -$5/bbl recently and the lack of progress on commissioning Dos Bocas (with the refinery still running at 17-18% of total capacity, some 50-60 kbd) means Mexican crude exports will be exposed to higher flows. In fact, December outflows averaged the highest pace since May at 970 kbd, mostly buoyed by higher availability of Olmeca and showing stable exports of Maya.

Mexican seaborne crude exports by country of destination, kbd.

Source: Kpler.

Falling HSFO cracks have cooled off the past weeks’ appreciation in Canadian grades. WCS quotes in Houston are now back to their normal trading range of -$4 to -$5/bbl, with FIP Hardisty prices barely seeing any movement around a -$13/bbl discount to WTI. Whilst Enbridge is now back to apportioning Mainline volumes (3% for heavy, 2% for light), TMX volumes have been relatively tame in December with exports totalling 360 kbd. This is 80 kbd lower than in October and 40 kbd below the November average. This has led to high-TAN TMX grades delivered to China strengthening to -$4/bbl vs Dubai whilst low-TAN grades delivered to the Los Angeles area rose to a -$2.8/bbl discount vs WTI. Thanks to continuously falling Aframax freight (now costing less than $4/bbl compared to the initial freight of $6-6.5/bbl this summer), the Hardisty netbacks of TMX grades are now only $2/bbl lower than Enbridge volumes to the US Midwest, a first in the history of the pipeline. The short-term outlook for TMX is quite murky, considering huge refinery maintenance works across the US Pacific Coast from March onwards. BP’s 250 kbd Cherry Point refinery will be going down for a month in April, likewise for Marathon’s Los Angeles refinery which will see some 300 kbd capacity shut in March. The closure of Cherry Point will be also an impactful event for ANS, as the refinery accounts for a quarter of global demand for the grade, equivalent to some 100 kbd last year.

Landed prices of heavy sour grades into Northeast China vs Dubai, $/bbl.

Source: Kpler, based on Argus media data.

Atlantic Basin: Johan Sverdrup valuations soon to feel the squeeze from increasing medium sour competition

Brent has been underperforming compared to other benchmarks over the past weeks amid weaker fundamentals, with a longer than typical European crude and condensate balance being the most significant contributor. Even though EU-27 crude demand averaged 9.9 Mbd in December, representing the top of the 12-month range, intake has remained sluggish compared to year-ago levels. This has kept regional crude availability elevated, pressuring BFOET crude differentials, with Forties remaining in discount territory versus North Sea Dated since late December. This compares to North American crude markets, where robust US crude intake has kept regional balances tighter. Additional support is coming amid an expected decline in US crude supply in mid-January, with output expected to ease by 450 kbd m/m to 13.1 Mbd this month amid a rapid decline in temperatures across the country’s shale patch (temperatures are forecasted to hit deep single-digit territory in some parts of the Permian). In Asia, crude markets have remained supported amid a decline in Russian and Iranian crude flows in December, which has seen the Brent versus Dubai EFS spread hit a multi-month low of $0.70/bbl last week, down some $1/bbl since late November.

Brent versus Dubai spread, $/bbl

Source: Argus Media

Johan Sverdrup crude valuations have risen by approximately $2 per barrel over the course of December, currently trading at a discount -$1.05/bbl against Dated on a FOB Mongstad basis. This recovery has been driven by stronger European gasoil/diesel cracks, which have recently ranged between $18 and $19 per barrel, as well as robust refinery runs in the region. However, looking ahead, JS valuations are likely to face downward pressure, as we expect crude intake in NWE to decrease to 5.8 Mbd in January (-150 kbd m/m), remain pressured at 5.75 Mbd in February and fall further to 5.5 Mbd in March. In addition to this, regional availability of medium-density crudes should remain plentiful in the coming weeks amid elevated exports of Mexican and Guyanese crude to Europe. Over Q4 2024, Guyanese crude departures to Europe (Unity Gold, Payara, Liza Gold) have averaged 500 kbd, equivalent to a 30% q/q and a 108% y/y jump. Another source of competition for Johan Sverdrup has been medium sour crude out of Senegal (see paragraph below). Hence, these dynamics should keep the regional sweet-sour spreads wider as we move into 2025.

Guyana crude exports to Europe, kbd

Source: Kpler

Since September 2024, Senegal’s Sangomar FPSO has  reached its nameplate capacity of 100 kbd, only three months after operations began at the field. In line with this, crude exports rose from 65 kbd in July to above 115 kbd in September, averaging 100 kbd over Q4 2024. The rise in the country's crude exports has provided Chinese and European refiners with a new source of medium sour crude, with China purchasing by far the largest share of Sangomar so far. In Europe, main buyers have included Italy, the Netherlands, and Spain, with the Milos vessel expected to arrive at the port of Cartagena on 6 January. The rise in medium sour crude exports from Senegal has provided competition for grades such as Johan Sverdrup, which are very similar in quality and typically bought by refineries in the Netherlands, Germany or Italy. According to preliminary loading plans, exports of Senegal's Sangomar crude have been scheduled at 125 kbd for February, which would mark a record high in the country’s oil exports. Increased availability of the Sangomar grade in the Atlantic Basin would further weigh on Johan Sverdrup valuations, which are already facing pressure from declining European crude demand in Q1.

Senegal's Sangomar crude exports, kbd

Source: Kpler

Middle East & Asia: Iranian oil floating storage hits 4-months high as US sanctions tighten

Middle East oil benchmark Dubai averaged $79.5/bbl in 2024, marking a second consecutive annual decline and its lowest yearly average since 2021, despite the market being finely balanced after OPEC+ postponed plans to unwind some voluntary cuts. Market sentiment slightly improved in H2 December amid hopes of stronger Chinese demand in 2025 and expectations of tighter Iranian oil supply under stricter US sanctions. TotalEnergies’ aggressive purchase of medium sour crude cargoes on the Platts MOC platform also supported the Dubai benchmark--The trading house acquired 34 of the 39 cargoes, primarily Upper Zakum and Oman grades. As a result, the Dubai M1-M3 spread averaged $0.92/bbl in December, up from $0.71/bbl in the prior month. Meanwhile, the closely watched Al Shaheen crude term price, determined by Qatar Energy’s monthly tender results, rose to $1.05/bbl in December from $0.73/bbl in November, indicating a potential increase in February-loading formula prices. However, worsening refining margins at Asian refineries are likely to limit the scope of OSP hikes. We expect Saudi Arabia to marginally increase its flagship Arab Light price by $0.20–$0.30/bbl to reflect the market structure while remaining competitive against other suppliers.

Dubai M1-M3 spread, $/bbl

Source: Argus Media

China issued 192.64 Mt (3.85 Mbd) of crude oil imports quotas to privately owned refineries for 2025, an increase from 179.01 Mt for the same batch in 2024. The additional volume is allocated to the newly established 400kbd Yulong refinery and the soon-to-come 120kbd Daxie refinery expansion project. Yulong has raised the operational rate of its first 200 kbd CDU to around 90% in December and aims to start up its second CDU in early 2025. So far, the refinery has purchased Oman and Angolan Dalia crude, in addition to Russian ESPO and Sokol grades. Daxie, which received 3 Mt of import quotas, has also bought some Russia’s Far East crude for January-February arrival. At the same time, Sinochem was allocated 17.12 Mt of quotas for its three refineries in Shandong, the same volume as in 2024, despite the refineries being shut down and declared bankrupt in September. Receiving the crude allotment suggests that Sinochem may opt to retain the three refineries after unsuccessful auction attempts and potentially bring them back into operation in 2025.

China’s crude oil import quota issuance, Mt

Source: Kpler

Iran’s crude oil and condensate exports dropped by 133 kbd m/m in December to 1.63 Mbd, as tougher US sanctions on tankers carrying Iranian barrels constrained shipping capacity. As illustrated in recent reports, these sanctions have disrupted shipping capacity on two-part journeys, leading to an accumulation of Iranian oil in floating storage. At the time of writing, some 21.88 Mbbls of Iranian crude sit on water for more than seven days, with two-third of them floating near Malaysia and Singapore. Onshore crude inventory in Iran also piled up due to the shipping clog, reaching an eight-months high of 54.69 Mbbls last month. On the Chinese side, imports of Iranian oil declined for the second month to 1.27 Mbd, while prices soared to around -$1.5/bbl against ICE Brent on a delivered basis, a level last seen in June 2022. The steep prices have deterred some buyers, leading to a slowdown in recent transactions. Instead, they have shifted attention to non-sanctioned crude, such as Brazilian Tupi and West African grades.

Iranian oil floating storage by current location, Mbbls

Source: Kpler

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