Russian oil exports hit a two-year low as domestic runs and compliance with OPEC+ cuts increase

Americas

• Bearish on TMX grades delivered to the USWC for February contracts, as refinery maintenance in PADD-5 should weaken demand, exerting downward pressure on local prices.
• Bullish on WTI due to cold weather-related shut-ins in Texas in January.
• Bullish on heavy sour alternatives to Mexican oil as USGC refineries look for substitutes and PADD-3 crude intake rebounds in March.

Atlantic Basin

• Bullish ICE Brent: The ICE Brent M1-M2 spread continues to widen, all the way to $0.7/bbl this week, just as algorithmic traders and hedge funds boost long positions ahead of Trump's inauguration.
• Bearish WTI-Brent Spread: ICE Brent-WTI spread hit a 4-month low at $2.3-2.4/bbl in this year's first week of trading. Anticipate WTI to weaken again with upcoming US refinery maintenance.
• Bearish CPC Blend in Short Term: Disruptions at Kazakhstan’s Tengiz field and subsequent downward revisions of January CPC exports have elevated Europe's light sweets. Expect a return to normal levels by February as Tengiz returns.

Middle East and Asia:

• Bullish in Dubai time spreads as sentiment improves and fears of further sanctions on Russia and Iran further tighten supply fundamentals.
• Bearish on Russian oil exports in the short-term, due to jumping domestic refinery runs.
• Bullish on west-to-east flows, as Asian refiners turn to Atlantic Basin medium-density crude and WTI's weakening in the short-term will weigh on ICE Brent.

Americas: USGC refineries receive crude from Ecuador and Senegal

After already moderately declining in November, Canadian TMX crude exports have eased further by 50 kbd m/m in December to 360 kbd, with half of these flows going to China and the other half heading to the USWC. Lower availability has driven prices for TMX grades delivered to China higher, from -$5/bbl vs ICE Brent M3 in mid-November to -$4/bbl for most of December (Argus Media). In the US, TMX prices should weaken soon amid refinery maintenance, with offline capacity in PADD-5 expected to rise from zero in December to 150-160 kbd over January and February. Total US crude imports from Canada (pipeline and seaborne flows) averaged 3.85 Mbd in the Sep-Nov period, with most heavy crude volumes going to facilities in PADD-2. Due to US refineries’ strong reliance on heavy crude from Western Canada, we would not expect Trump’s threats of a 25% tariff on US imports from Canada to materialise, but rather to be used as a negotiation tactic. In the unlikely event of an imposition of tariffs, operational costs at US refineries would substantially increase, lifting prices at the pump.

Canadian crude flows to the US by transport, Mbd, %

Source: EIA

In line with our expectations, US crude and condensate production reached record highs in Q4, averaging 13.45 Mbd, 230 kbd higher q/q. These increases have come from a supply rebound from the Gulf of Mexico in October as well as higher output from the Permian basin. In 2025, the US will be one of the largest drivers of oil supply growth, next to Brazil and Canada, with our books expecting output at 13.54 Mbd this year, equivalent to a 310 kbd y/y increase. This 2025 tally already considers a material supply drop for this month amid the likely impacts of freeze-offs. Parts of Texas are currently experiencing a significant cold snap due to a polar vortex bringing arctic air into the region. This has led to subfreezing temperatures across the state, with some areas experiencing snowfall and icy conditions. Hence, we forecast cold weather-induced shut-ins or delays to pressure output by 450 kbd m/m in January to 13.11 Mbd, with a rebound to 13.38 Mbd expected in February. Depending on the severity of inclement weather events, we might still need to revise these numbers higher or lower.

US crude supply outlook, Mbd

Source: Kpler

Higher refinery runs in the USGC last month have contributed to inventory drawdowns, with Texas crude stocks dropping to 56 Mbbls in December, 7% below year-ago levels. US refinery runs should significantly decline from 16.65 Mbd in December to 15.4 Mbd in January, led by PADD-3, where intake should drop by over 800 kbd m/m. Hence, crude inventories are likely rise again, a dynamic that is already reflected in weekly inventory data. EIA data shows that in early January (week ending 3 Jan), USGC stocks have risen to 232.4 Mb, from 225.5 Mb in the last week of December - although this was influenced by lower exports. Moreover, USGC refiners have been looking for heavy sour alternatives to Mexican oil. With Mexico requiring more barrels domestically and with production dropping, PADD-3 imports of Mexican crude have fallen over 30% in 2024, and in the meantime, inflows of Venezuelan crude have almost doubled y/y to 210 kbd in 2024 (in December 2024, USGC imports of Venezuelan grades even hit a 6-year high of 285 kbd). Other grades could soon join the slates of PADD-3 refiners more frequently. In November, the USGC received its first cargo of heavy sour Oriente from Ecuador since 2020 and in December we saw the first ever delivery of medium sour Sangomar crude from Senegal arrive.

USGC crude inventories, Mb

Source: EIA

Atlantic Basin: Europe’s light sweet complex set to weaken as US flows rise and CPC volumes recover

ICE Brent futures saw backwardation widen to levels unseen since late September, with the M1-M2 spread reaching $0.7/bbl by the end of the first trading week in 2025. Any semblance of contango in Brent CFDs has disappeared concurrently to widening futures spreads, with a consistent $0.2-0.3/bbl in between respective weeks. Consequently, the Brent Dated-to-Frontline spread widened as well, with this week’s trading seeing the DFL double w/w to $1/bbl. With CTA positioning now being firmly bullish on ICE Brent and hedge funds’ net positioning posting a third straight week of increases (up by 16 MMbbls equivalent from a week ago to a total net length of 199 MMbbls), the short-term sentiment has palpably strengthened. Whilst it could seem that Brent has strengthened quite significantly, its positioning vis-à-vis WTI has weakened as the ICE Brent-WTI spread dipped to its lowest since September 2024, at $2.3-2.4/bbl. Whilst WTI Midland cargoes are still competitive in the region, we expect US light sweets to weaken into February as PADD 5 refiners start their seasonal maintenance works.

ICE Brent time spreads, $/bbl.

Source: ICE.

Saudi Aramco’s uniform $1.30/bbl m/m hike for all European customers projected an image of strength into the market, however differentials still feel relatively fragile. Over the past week, the refinery operator Petroineos was notably active in the North Sea market, actively bidding for Forties cargoes traded in the window and even landing a late January cargo from BP, oddly enough on a CIF Rotterdam basis. The closure of Scotland’s only remaining refinery would deal an additional blow to Forties differentials as Grangemouth had a dedicated pipeline connecting it to the Forties system from Finnart onwards, as some 40-50 kbd would need to be marketed elsewhere. US light sweet WTI accounted for another third of Grangemouth imports, with the rest mostly coming from Norway’s continental shelf. Spot differentials of Forties have been regularly dipping into negative territory in late December/early January on a FOB Hound Point basis. In 2024, it was discounted 54 times out of 254 trading days – this year, that number is poised to get much higher after the Q2 shuttering of Grangemouth.

Spot Forties differentials vs Dated, $/bbl.

Source: Argus Media.

Europe’s light sweet market still feels overheated on the back of supply disruptions, particularly Kazakhstan’s turnarounds at the Tengiz field (supposed to be finished by mid-January). With gasoline cracks in single digits in both NWE and the Mediterranean as well as gradually weakening naphtha cracks, the return of full-capacity CPC loadings would almost immediately shave off almost $1/bbl from light grades. The downscaling of CPC’s January loading programme by 150 kbd has lifted Saharan to a $1/bbl premium to Dated, up from its more natural trading range of $0.1-0.3/bbl above the benchmark. The February loading schedule for CPC Blend is set to appear over the upcoming days after prolonged winter holidays in Russia and we believe it would mark a full return to 1.4 Mbd maximum capacity throughput. In contrast to the rest of the Mediterranean portfolio, Libyan grades have seen limited upwards movement in differentials with Es Sider still trading around a -$1/bbl discount to Dated. This stems from Libya’s soaring exports which hit a 2-year high in December, at a whopping 1.16 Mbd, also buoyed by the North African nation’s Zawia refinery incurring physical damage from skirmishes between local militias.

CPC seaborne crude exports by country of destination, kbd.

Source: Kpler.

Middle East and Asia: Russian oil exports hit a two-year low

As anticipated in last week’s analysis, the backwardation in the Dubai crude oil contract steepened significantly over the past week. The front-month to third-month spread widened from $1.15/bbl to $1.47/bbl. This reflects growing seasonal demand ahead of the Chinese Lunar New Year, which is expected to provide a firm floor for medium sour crude prices in the coming weeks. Demand for medium sour crude is set to strengthen further as the Shandong Yulong refinery prepares for trial runs at its second 200 kbd CDU. Similarly, Sinopec is working on launching its fifth CDU, a 220 kbd unit at the Zhenhai plant, though a reported leak has delayed its start-up by approximately one week. At the same time, the US is reportedly planning to sanction around 100 tankers involved in the transport of Russian oil, building on its existing pressure on Iran and Russia. While we expect the impact on crude flows to be largely temporary, such measures could tighten the Asian medium sour benchmark further in the near term.

Dubai M1-M3 spread, $/bbl

Source: Argus Media

These potential new US sanctions on the Russian oil supply chain could be seen as a way for Biden to leave a lasting legacy in support of Ukraine and would be politically hard to undo for the incoming Trump administration in the short-term. However, Sovcomflot tankers, despite being under OFAC sanctions for nearly a year, continue to deliver Russian crude to China and India, indicating that logistical workarounds are likely to emerge over time. With the US recently labelling COSCO and CNOOC as “Chinese military companies,” Beijing might be inclined to deepen its cooperation with Moscow to develop alternative shipping solutions for Russian crude, despite the state-owned Shandong Port Group banning US-sanctioned tankers from docking and unloading cargoes from this week onwards. This comes as seaborne exports from Russia dropped to a two-year low of 3.1 Mbd in December due to increased domestic winter demand and improved OPEC+ compliance.

Russian seaborne oil exports by destination continents, kbd

Source: Kpler

As a result, Indian refiners, facing reduced Russian export volumes, are turning to Middle Eastern suppliers. Imports in December of oil from Saudi Arabia, Iraq, the UAE, Kuwait and Oman reached 2.4 Mbd, up from 1.97 Mbd in November. However, these alternatives come at a higher cost. Urals crude remains the most cost-effective option for Indian buyers, offering a $2-3/bbl advantage over Basrah Medium on a DES basis. Its availability is nonetheless going to remain constrained as Russian refinery runs are projected to rise by 113 kbd to 5.63 Mbd in February, limiting volumes available for export markets. Beyond higher pricing of Middle Eastern crude, stronger Asian demand for medium-density Atlantic Basin crude due to ongoing logistical issues with Iranian oil is also pushing their prices up. Brazil’s Tupi differential rose by $0.90/bbl to $4.20/bbl against ICE Brent and Congo’s Djeno rose by $0.60/bbl to a premium of $2.60/bbl against ICE Brent. Norway's medium-sour Johan Sverdrup crude also rose to a two-month high of -$0.80/bbl against Dated Brent on a FOB Mongstad basis, as a South Korean refinery purchased 2 Mbbls of January-loading cargo in late December, the first such shipment of the grade to Asia since October.

India’s oil imports from the Middle East by origin country, kbd

Source: Kpler

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