Tariff uncertainty eases the momentum in the Americas heavy sour market

Executive Summary

Americas:

• Bullish WCS Hardisty and Maya in the short term as a temporary tariff pause could lead to a slight recovery.
• Bearish Venezuelan crude supply with Chevron having to wind-down activity in one month.
• Slightly bearish on other heavy sour Latam grades in the short term as the end of Carnaval season in South America will boost combined exports from Argentina, Colombia and Ecuador in March.

Europe and Africa:

• Bearish on Norwegian crude supply in March as bad weather has delayed the ramp up of the Johan Castberg field
• Bearish on CPC Blend differentials due to the Tengiz field expansion driving higher availability this month
• Bullish on Sudanese crude supply as Dar Blend exports have resumed since late February

Middle East - Asia - Russia:

• Bearish on Asian market structures as the anticipated unwinding of OPEC+ cuts from April onwards, combined with still robust Iranian crude flows, keeps regional markets well supplied.
• Bearish on North Sea crude flows to Asia, particularly for European medium density crudes, which remain pricey compared to their lighter peers, as a potential weakening in the Dubai benchmark weakens west-to-east arbitrage opportunities.
• Neutral on Iranian crude flows to China in March, which have ticked up strongly in February, with Iranian crude supply remaining elevated, despite Donald Trump's maximum pressure campaign.  

Americas: Price momentum eases for heavy sours, but outlook remains firm

The US administration imposed 10% tariffs on Canadian and 25% on Mexican energy imports starting March 4, only to announce a temporary pause until April 2 for goods covered under the USMCA agreement. This abrupt policy shift has created significant uncertainty in North American crude markets.

The initial market reaction was felt most acutely by Canadian producers, with WCS Hardisty differentials to WTI Cushing falling 6% w/w to -$14.36/bbl. However, the impact has been mitigated by PADD 2 refinery maintenance, with peak outages expected to reach 600 kbd in April, up 450 kbd from February levels. With the latest pause on tariffs, WCS could see a slight rebound, but directional uncertainty will persist. Meanwhile, Maya crude differentials to WTI Houston remained relatively stable w/w at -$7.38/bbl. Given Mexico’s established export flows and potential diversification into Asia and Europe, heavy sour supply is not yet under significant strain.

WCS differentials against WTI, $/bbl

Source: Argus Media

Earlier this week, the US Treasury confirmed the revocation of Chevron’s license to operate in Venezuela, allowing a one-month wind-down period before complete cessation of operations in early April. This move eliminates 230 kbd of Venezuelan crude imports into the US Gulf Coast, reinforcing upward pressure on alternative heavy sour grades. We had previously expected Venezuelan supply to gradually decline post-August, but the new timeline accelerates this shift. As a result, heavy sour differentials in the Americas are set to strengthen further over Q2.

Venezuelan crude supply, kbd

Source: Kpler

Despite expectations that US refiners would turn to Latin American crude, the past week saw a slight softening in heavy sour pricing. A key factor has been weaker US fuel oil cracks, with HSFO cracks declining by $3.10/bbl w/w. Additionally, the temporary tariff pause on Canadian and Mexican crude has reduced the urgency to source immediate alternatives.

However, heavy sour grades remain at their highest levels since late 2023, reflecting structural tightness. Combined exports from Argentina, Colombia, and Ecuador fell by 110 kbd m/m in February to 909 kbd, primarily due to lower Ecuadorian production and increased domestic refining demand. Looking ahead, post-Carnaval season demand in South America is expected to decline by 60 kbd m/m in March, but the broader supply-demand balance remains tight as the USGC braces for the Venezuelan crude shortfall.

Selected Latam heavy sour grades differentials to WTI, $/bbl

Source: Argus Media

Atlantic Basin: Norwegian Johan Castberg ramp-up delayed once again

Equinor's oil production startup from the Johan Castberg field in the Arctic Barents Sea has been delayed once again due to severe weather disrupting vessel and helicopter operations. Originally scheduled for a Q4 2024 launch, the project has faced multiple postponements. The first crude cargo, initially expected to load between 21-24 February, has now been pushed back to 14-17 April, according to loading schedules. The April program includes four 700k cargoes, with Equinor loading three and Var Energi lifting the remaining shipment. Johan Castberg, estimated to hold 450-650 million barrels of recoverable oil, will become the second producing oilfield in the Barents Sea after Goliat. Equinor owns 50% of the field, with Var Energi (30%) and Petoro (20%) as partners. Norwegian crude supply is projected to increase significantly in 2025, with production expected to ramp up from 1.79 Mbd currently to around 1.92 Mbd in Q4, maintaining these levels into 2026. The light sweet Johan Castberg crude (34.7 API, 0.2% sulfur) is much lighter than the medium sour Johan Sverdrup (28.7 API, 0.8% sulfur) and closely resembles Russia’s ESPO crude, albeit having a lower sulphur content (34.8 API, 0.6% sulfur). While its high middle distillates yield make it an attractive feedstock for European refiners, they will need to manage its high pour point of +6°C. Equinor may explore blending options to reduce the pour point for easier handling.

Norway crude supply outlook, kbd

Source: Kpler

Kazakh CPC Blend exports surged to a six-month high of 1.2 Mbd in January, followed by a record 1.53 Mbd in February, driven by the Tengiz field expansion to 900 kbd. Due to this hike, Kazakhstan crude supply reached 1.747 Mbd in February, exceeding its OPEC+ crude production target by approximately 280 kbd. Initially, March exports were set to hit a new peak of 1.7 Mbd, but a Ukrainian drone strike on 17 February damaged key infrastructure along the CPC pipeline in Russia, particularly the Kropotkinskaya pumping station. Russian operator Transneft estimates repairs could take up to two months, potentially cutting flow rates by 30%. If the CPC infrastructure remains offline, March exports may drop from the planned 1.7 Mbd to 1.2 Mbd, forcing supply adjustments. However, the impact of attacks might be minimal, as Kazakhstan’s energy ministry plans to increase CPC pipeline flows by 12% m/m in March, signaling a push to raise production despite OPEC+ compliance efforts. Higher availability will pressure CPC differentials, with valuations in decline since the start of the month, settling at a -$6.1/bbl discount vs NSD on 4 March.

Kazakh CPC Blend exports, kbd

Source: Kpler

Dar Blend exports, halted since March 2024, are set to resume after Sudan lifted a nearly year-long force majeure on crude flows from South Sudan. Exports were initially suspended due to pipeline damage amid conflict, exacerbated by crude solidification from diesel shortages. With Sudan’s Khartoum refinery offline, diesel shortages delayed pipeline repairs, while restricted access to RSF-controlled areas further complicated recovery efforts. However, following improved security conditions and agreements between Khartoum, Juba, and BAPCO, Sudan’s Energy Ministry lifted force majeure in January. A Dar Blend cargo, loaded on the Suezmax Toska on 24 February, is expected to arrive at Malaysia’s Port Dickson refinery by 12 March. Exports are set to gradually recover to pre-2024 levels of 80 kbd, potentially pushing combined Sudan-South Sudan crude supply to 200 kbd by Q3 2025. Dar Blend is expected to flow back into key markets such as Fujairah, Singapore, and Malaysia, supporting VLSFO production due to its low sulfur content.

Sudanese Dar Blend exports, kbd

Source: Kpler

Middle East and Asia: Trump policies and OPEC+ management to reshape Asian crude markets

In a move that defied market expectations, OPEC+ announced plans to gradually unwind production cuts from April onwards, with members set to restore approximately 2.2 Mbd of supply over the next 18 months. While OPEC+ retains the flexibility to halt this supply increase depending on market dynamics, the decision is poised to impact global crude markets, particularly across Asia. We currently expect OPEC+ to unwind cuts from April onwards, before pausing over the remainder of the year. Asia’s crude markets have remained relatively tight over the first two months of the year amid heightened compliance from Middle Eastern OPEC members and lingering uncertainty surrounding sanctions on Russia and Iran. This backdrop has kept the Dubai benchmark supported, with the Brent-Dubai EFS spread hovering close to parity since mid-February. However, the anticipated increase in supply from OPEC+ from April onwards and still-strong Iranian crude flows—reaching over 1.7 Mbd in February, a two-month high and up around 250 kbd m/m—are likely to soften regional market structures in the coming weeks, resulting in a potential widening of the Brent-Dubai EFS spread compared to current levels.  

Regional market structures, $/bbl

Source: Argus Media

A widening of the Brent-Dubai EFS spread could dampen west-to-east arbitrage opportunities, curbing crude flows from Europe to Asia. The narrower-than-usual spread in January and February boosted flows from the North Sea to Asia to an 11-month high of 300 kbd in February, nearly doubling January's volumes. Approximately one-third of these departures were bound for China, with South Korea (75 kbd), Myanmar (75 kbd), and Brunei (one cargo of 40 kbd) absorbing the remainder. The bulk of these flows comprised medium-density Johan Sverdrup crude (at 180 kbd; two VLCCs and one Suezmax), while the rest consisted of light-sweet Forties. Although ample light sweet crude availability in Europe may pressure European light sweet crude differentials, potentially encouraging sustained buying interest from Asian refiners, a widening of European sweet-sour spreads, with differentials for Johan Sverdrup hovering at over $1/bbl premium vs. North Sea Dated, is likely to weigh on flows of the grade to Asia over the coming months.

Regional sweet-sour spreads, $/bbl

Source: Argus Media

Meanwhile, a rise in Iranian crude exports in February (averaged 1.7 Mbd) has been keeping floating storage of Iranian crude elevated. Our data shows that Iranian floating storage rose to 21 Mbbls in early March, doubling from the multi-week lows observed in mid-February. The buildup occurred alongside increased inflows of Iranian crude to China, with Chinese imports climbing to around 1.4 Mbd in February—an increase of approximately 600 kbd m/m and representing the highest levels since October last year. Despite shifting Chinese port policies (and Trump's ambition of pressuring Iranian exports), with some terminals denying entry to blacklisted vessels even after accepting shipments in January and early February, Iranian crude flows to China are expected to remain robust for the time being. Preliminary data for early March reinforces this outlook, showing flows averaging around 1.4 Mbd during the first week of the month.

Iran oil exports by destination country, kbd

Source: Kpler

Want market insights you can actually trust?
‍

Kpler delivers unbiased, expert-driven intelligence that helps you stay ahead of supply, demand, and market shifts. Our precise forecasting empowers smarter trading and risk management decisions - backed by the most accurate oil price predictions two years running.

Unbiased. Data-driven. Essential.

Trade smarter. Request access to Kpler today.