Russia’s Far East crude flows show early signs of slowing

Americas:

• Bearish on Canadian crude valuations if Trump tariffs choke US demand.
• Bearish on Canadian supply if exports opportunities are reduced.
• Bullish on US crude exports as USGC ports fully reopen and North Dakota recovers from slight output reductions amid inclement weather events.

Atlantic Basin:

• Bearish ICE Brent time spreads: Spectre of European maintenance and decreasing panic in the markets post-Russia sanctions will continue to pressure the prompt months.
• Bullish CPC Blend differentials: Due to lower European buying of February-loading cargoes and lower impact of runaway Dubai quotes, CPC arbitrage to Asia is wide open.
• Bullish Nigerian differentials: Two separate India spot tenders and lower March export programme to lift WAF grades after a relative lull.

Middle East and Asia

• Bearish on China’s imports of Russian crude oil: Chinese ports have approved the receipt of Russian crude cargoes loaded before January 10, some buyers seem hesitant. Whether ports will accept sanctioned tankers loaded after January 10 remains uncertain.
• Bullish on Middle Eastern sour crude: Spot premiums for medium sour crude have hit their highest levels in over two years as Chinese and Indian refiners are scrambling to secure alternatives to Russian oil. China bought its first Kazakh-origin CPC Blend cargoes in almost a year.
• Bearish on Australian oil production: Santos has postponed the development of the offshore Dorado project off Western Australia, the country's largest remaining offshore oil and gas discovery.

Americas: Canada’s TMX crude exports could see a rerouting towards the East amidst Trump tariffs

Of the total 4 Mbd of Canadian crude typically exported to the US (90% via pipeline), the heavy sour Western Canada Select (WCS) grade transported through the Enbridge Mainline pipeline system accounts for the vast majority. TMX crude represents only around 5% of total flows to the US, averaging approximately 180 kbd over H2 2024, with volumes projected to exceed 200 kbd by the end of January. Following Donald Trump’s inauguration this week, concerns have escalated over the potential impact of tariffs, particularly after his January 20 statement that he would proceed with a 25% tariff on imports from Canada and Mexico, potentially taking effect on February 1. Such a move would significantly affect Canadian oil flows to the US, impacting both TMX and WCS volumes. Tariffs would make Canadian crude too expensive for PADD-5 refiners, forcing them to replace Canadian volumes with imports of heavy crude from Latin America (e.g., Ecuador, Colombia) or the Middle East (e.g., Iraq). With reduced buying interest from the US, the valuation of low-TAN TMX crude would come under pressure, and 170-200 kbd of TMX volumes could be rerouted from the Port of Vancouver to Asian refiners, primarily in China but also in South Korea. This redirection of flows would provide a bullish impetus to freight rates due to increased voyage lengths and higher ton-miles.

While Canadian crude valuations are likely to face mid-term pressure from tariff impacts, recent market dynamics have shown a strengthening of China-delivered TMX crude prices. The TMX high-TAN dap Zhejiang vs. ICE Brent discount narrowed from -$5/bbl in late December to -$2/bbl in late January. This price shift is partly driven by Asia's increased buying interest in heavy grades, prompted by the potential tightening of US sanctions on Venezuela and Iran, which would constrain heavy and medium sour supplies to the East.

Canadian TMX crude exports, kbd

Source: Kpler

It is important to note that Trump tariffs could lead to a significant reduction in Canadian crude output. If demand for WCS crude from PADD-2 (Midwest) refiners declines, Canada would be forced to seek alternative buyers overseas, necessitating export via USGC ports. However, the feasibility of accommodating these additional volumes at Corpus Christi and Houston remains uncertain. In 2024, a total of 3.5 Mbd was exported from the USGC, primarily consisting of WTI Midland. With upcoming US refinery shutdowns—270 kbd LyondellBasell Houston (Q1) and 133 kbd Phillips 66 Los Angeles refinery (late 2025)—exports are projected to rise further, approaching 4 Mbd in 2025. The maximum export capacity of USGC ports is estimated at 6 Mbd, though the actual figure is likely lower due to maintenance requirements and unforeseen disruptions.

In a hypothetical scenario where US demand for up to 3.5 Mbd of Canadian oil drops, there would be insufficient capacity to export these volumes via USGC ports. Specifically, combining 4 Mbd of WTI exports with 3.5 Mbd of Canadian crude would result in total volumes of 7.5 Mbd, exceeding the estimated 6 Mbd capacity. As a result, at least 1.5 Mbd of Canadian volumes would lack an export route. Consequently, Canada would need to curtail output by at least 1.5 Mbd, the US would face higher costs for crude oil imports, and US consumers would experience elevated fuel prices. These dynamics suggest that the full implementation of Trump tariffs on Canadian oil is unlikely, given the potential economic disruptions and higher energy costs for US consumers.  

USGC crude exports via main ports, kbd

Source: Kpler

Winter Storm Enzo, a rare and severe weather event, temporarily disrupted Gulf Coast operations earlier this week. Plunging temperatures, snow, and ice led to the closure of major ports, including Houston, Beaumont/Port Arthur, and Corpus Christi. Kpler data shows total US export volumes this week will plummet to 3 Mbd from over 4.9 Mbd in the week ending 17 Jan, as vessel movements stalled, particularly in key waterways like Sabine-Neches.

Despite this sharp export decline, the broader impact on U.S. crude production was minimal, although North Dakota saw a 30 kbd production loss, owing to the severe weather. As the weather improves, we expect the production loss to come back online by early next week. According to the National Weather service, the 8-14 day outlook indicates warmer weather with highs forecasted in the 60s Fahrenheit by the weekend. This will ensure that the lost production from North Dakota is brought back online while operations in the Gulf remain unaffected.

Already, exports from Corpus Christi resumed operations midweek, including four VLCCs loading at South Texas Gateway and Enbridge Ingleside. As port logistics also normalize over the coming days, clearing deferred exports will likely cause a rebound of crude exports going into next week, compensating for this week's disruptions.

US weekly crude and condensate exports, kbd

Source: Kpler

Atlantic Basin: Diverging crude realities see Europe cool down as Asia keeps on panic buying

The panic buying of the Asian markets has starkly contrasted with the European markets where backwardation is gradually narrowing this week, despite the recent inauguration of Donald Trump and his tariff threats vis-à-vis Canada and Mexico. The ICE Brent M1-M2 spread dipped below $1/bbl again, the 12-month spread lost some $2/bbl over the past week and is back to trading slightly above $6/bbl whilst the 36-month spread shrank to single digits again, trending around $9.5/bbl at the time of writing. The Dated-to-Frontline spread narrowed, too, halving to $0.7-0.8/bbl after hitting a five-month high of $1.7/bbl in the first days of post-sanctions frenzy. Whilst CFTC is still yet to publish positioning data for the week ending January 21, we believe that the net length in hedge funds’ positions has already peaked mid-January at 254 MMbbls, boosted by Biden’s Russia sanctions, and from now onwards profit-taking would be the new theme. Regional discrepancies are creating massive tailwinds for Brent-pegged grades moving into Asia as the Dubai-Brent spread widened to an unprecedented $3.74/bbl this week, well above the $2.5/bbl maximum of 2024. Particularly for refiners that don’t necessarily hedge their physical exposure, some differentials in the Atlantic Basin would be just too good to ignore.

ICE Brent time spreads, $/bbl.

Source: ICE.

Whilst differentials for Atlantic grades that routinely sail towards Asia have soared higher, seeing Guyanese premia vs Dated move above $4/bbl (and for Payara Gold even above $5/bbl), the Mediterranean is shaping up to be the next best thing for Asian refiners. This week has seen a flurry of deals involving CPC Blend deliveries to China and South Korea, with landed prices to China trending slightly above $3/bbl vs Dubai swaps. For buyers, the struggles of CPC exporters are a boon – with flows rebounding to 1.4 Mbd in February, there is a notable chunk of next month’s Suezmax loadings that remains unsold. Consequently, the FOB Yuzhnaya Ozereevka differentials of CPC have dropped to their lowest since last March, a whopping -$8/bbl discount to Dated. Prolonged maintenance on Tengiz finished mid-January, suggesting that the field could add at least 175 kbd of light sweet crude into the CPC Blend pool. The ultimate question would be whether the two-month turnaround at the field allowed the operator TCO to boost output rates beyond their normal range of 650-660 kbd, in line with the commissioning schedule of the Tengiz Expansion project. We expect incremental volumes to gradually trickle into Kazakhstan’s supply numbers over Q1-Q2.

CPC Blend differentials on a FOB Yuzhnaya Ozereevka basis, $/bbl.

Source: Argus Media.

Meanwhile, the appearance of Nigeria’s March loading programmes seems to be finally foreshadowing a period of lower oil exports across the board. Seeing lower Qua Iboe, Bonny Light and Forcados outflows, Nigerian exports are set to average 1.31 Mbd next month, down 135 kbd compared to the February programme and slightly lower than January’s 1.32 Mbd. In terms of differentials, there has been limited movement recently after a knee-jerk appreciation earlier in the month, with Escravos and Forcados still trading at a $1.0-1.5/bbl premium to Dated. Spot Indian tenders could provide a much-needed uplift for WAF pricing, with both IOC and MRPL seeking specifically Nigerian and Angolan grades. VLCC freight costs from Nigeria to China soared by 50% in the aftermath of US sanctions on Russia, peaking mid-month around $3.7/bbl, however lower purchasing activity in the third decade of January has cooled down the WAF frenzy. However, Indian refiners stepping up their purchases could lift FOB quotes very soon.

Nigerian seaborne crude exports, kbd.

Source: Kpler.‍

Middle East and Asia: Russia’s Far East crude flows show early signs of slowing

The sweeping US sanctions on Russian oil tankers have begun to show early signs of slowing crude flows from Russia's Far East, with a dozen newly sanctioned tankers anchoring off ports—some loaded with crude awaiting orders, others idling in ballast. While Russian traders work to deploy more non-sanctioned vessels for oil transport, China’s Shandong province appears to have greenlighted the discharge of all Russia-linked sanctioned vessels at its facilities, provided the cargoes were loaded before January 10. However, it continues to enforce strict restrictions on any cargoes loaded after that date. Last week, two vessels, Nikolay Zadornov and Mermar, offloaded Sokol and ESPO crude at Yantai. However, at the time of writing, three vessels that qualify for the waiver granted by Washington are still anchored off Shandong. One of them, Huihai Pacific, is believed to be carrying an ESPO cargo booked by Sinopec and is currently awaiting further instructions from the oil firm, two market insiders told Kpler.

Notably, the vessel Zaliv Baikal appears to have loaded 700 KB of Sakhalin Blend on January 14 and successfully discharged the cargo at Xinhaiwan port in China’s Jiangsu province. This suggests that there may not be a uniform directive from Beijing on handling U.S.-sanctioned vessels. Given that the preemptive ban on receiving OFAC-listed tankers applies only to ports operated by the Shandong Port Group, it is likely that other Chinese ports will continue accepting them. But still, China’s imports of Russian Far East crude fell to a six-months low of 717 kbd last week, and this level is expected to remain low in the upcoming weeks.

Sanctioned tankers scheduled loading Russian Far East crude

Middle Eastern crude oil prices surged to their highest levels in at least 15 months this week, driven by a buying frenzy from China and India as they scramble to find alternatives to Russian crude. The Dubai backwardation steepened to $5.05/bbl on Tuesday, a level not seen since October 2022, signalling a nearly certain OSP hike of at least $1.70/bbl, if not more, next month. Prices of medium sour grades, such as Upper Zakum and Oman, saw a particularly strong rally as refiners snapped up both prompt-loading cargoes and March-loading barrels, amid concerns that Russian oil sellers might take weeks to find workarounds to circumvent US sanctions. In this context, India’s MRPL issued its first spot buying tender since 2022 this week, seeking sour crude for late February delivery.

While the race for sour crude continues, interest in arbitrage sweet grades is also rising, even though the Brent-Dubai EFS remains relatively wide. China’s Unipec, Sinochem, Yanchang and Hengyi collectively purchased 5 million barrels of Kazakhstan-origin CPC Blend for March arrival. The last time China imported Kazakh CPC Blend was in June 2023. Orders for Brazilian crude nearly doubled last month’s level in January, with Chinese refiners snapping up at around 21 Mbbls of April-delivery cargoes, according to Argus Media. China’s imports of Brazilian crude fell to a 26-month low of 469 kbd in December but are expected to rebound in January and February, driven by an increase in crude production from the South American nation. Looking ahead, China’s buying spree of Brazilian and other Atlantic Basin barrels may continue if the sweet-sour spread keeps narrowing.

Upper Zakum and Murban diffs to Dubai, $/bbl

Source: Argus Media

Australia’s energy firm Santos has decided to postpone the development of the Dorado project to an unspecified date. Located in the Carnarvon Basin off Western Australia, Dorado is the country’s largest remaining offshore oil discovery and has faced several delays in recent years. Last year, Santos, which holds an 80% operated interest in Dorado, pushed back the project's FID to 2025 and aimed to cut capital expenditure by reducing the nameplate capacity by up to 40% to 60 kbd. This week, the company abandoned its plan to purchase the FPSO that had previously been considered for Dorado and suspended the front-end engineering and design (FEED) process.

Australia’s crude oil production has been on a downward trajectory since 2019, with output estimated to decline to around 268 kbd in 2024 as production from mature fields accelerates. The launch of the offshore Barossa gas project in Q3 2025 is expected to offset some declines of Australia’s condensate output. Meanwhile, exports from the Oceanian country remained flat last year, hovering at a five-year low of 197 kbd. With two-thirds of its exports consisting of condensates such as North West Shelf (NWS), Ichthys, and Wheatstone, Australian oil primarily targets refiners in South Korea, Singapore, and Thailand for naphtha and middle distillate production. As Asian refiners scramble to secure alternative supplies to Russian crude, NWS and Ichthys have surged to their highest levels since March 2022, alongside the soaring prices of light crude grades such as Murban and WTI. A Chinese refinery, likely Unipec, has purchased a rare NWS cargo for mid-March loading in the absence of Russian light sweet supply.

Australia’s crude/co exports by destination, kbd

Source: Kpler

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