Ukrainian strikes to slightly lift MED light sweet differentials

Executive Summary

Americas:

• Bearish on Guyanese crude differentials, despite declining Guyanese exports (amid a lower loading schedule for April), with lower European crude demand keeping a lid on export demand.
• Bearish on light sweet crude differentials (i.e. WTI), despite moderately high supply outages in North Dakota this week, as a recovery in shale supply in late February, higher refinery maintenance, and refinery closures, keep regional light sweet crude markets oversupplied through Spring.

Europe and Africa:

• Bearish on Russian crude demand in February as refineries are affected by Ukrainian drone attacks
• Bullish on CPC crude valuations due to lower availability, with differentials potentially moving to the -$2/bbl to -$3/bbl bandwidth vs Dated
• Bearish for Johan Sverdrup exports and differentials as demand softens and alternative grades remain competitive

Middle East - Asia - Russia:

• Bearish on Dubai backwardation, with the three-month spread falling to $3/bbl. The correction is likely to continue, driven by increased discharges of Iranian and Russian crude into China.
• Other Middle Eastern medium sour crude diffs to continue correct, as increased imports of sanctioned crude reduces demand for Al Shaheen, Das and Upper Zakum grades.
• Bearish on Asian light sweet grades, as WTI imports into China plummet, but cargoes manage to find a home elsewhere in Asia-Pacific due to an open west-to-east arbitrage.

Americas: Regional crude oversupply to weigh on differentials in March

US sanctions on Russia, uncertainty surrounding US tariffs on oil imports from Mexico and Canada, and robust US crude demand (vs. year-ago levels) have supported medium-density crude markets over the last two months. These factors have driven several Latin American crude differentials into stronger backwardation, with Guyanese grades holding premium territory against North Sea Dated since early January. Liza was recently assessed at a $1.35/bbl premium, while Unity Gold and Payara Gold are currently priced at $1.65/bbl and $1.75/bbl, respectively. Recent upward support has stemmed from a tighter loading schedule, with total crude exports expected to average 567 kbd in April—down 12% from March—driven by a 38% drop in Liza exports to 100 kbd. Despite the decline in availability, heavy maintenance in Europe and other regions will keep medium-density crude markets slightly oversupplied through spring, softening Guyanese crude differentials in March and April. European primary distillation offline capacity is set to peak at over 1.8 mbd in April, up 100 kbd from current levels, keeping export demand from the continent pressured.

Guyanese crude exports to Europe by grade, kbd

Source: Kpler

Colder temperatures in North Dakota have disrupted regional crude output, with 100-130 kbd—approximately 10% of the region’s production—offline as of Wednesday, according to the North Dakota Pipeline Authority. Production across key regions, including the Permian Basin, has faced disruptions since early January due to severe cold weather. Reflecting these outages, we have revised our North Dakota production estimates to 1.1 Mbd for February—down 60 kbd from the latest official December figure of nearly 1.2 Mbd. Combined with supply constraints in the Permian Basin, US crude production is now forecast to average 13.2 mbd in February, 150 kbd lower than our previous projection, aligning with January levels. This represents a total decline of roughly 350 kbd compared to December. However, milder weather expected later this week should support a gradual production recovery, with output likely to approach normal levels by month-end, limiting the duration of outages.

North Dakota crude and condensate supply, Mbd

Source: NDIC

Production outages across US shale fields, stable product cracks (with US gasoline hovering around $10/bbl this week, up $3/bbl m/m), and an anticipated rise in crude demand during spring have recently supported WTI prices. Additional upside stems from lower production of competing grades like CPC, which competes with WTI in the Mediterranean, following a drone attack on a Russian pumping station. However, factors such as refinery maintenance (with 1.2 Mbd of US primary distillation capacity offline in March; IIR), recovering shale supply, the closure of LyondellBasell’s 264 kbd Houston refinery, and Chinese tariffs on US oil imports are tempering the outlook. Consequently, WTI is expected to weaken relative to other benchmarks, widening the Brent-WTI spread and creating more favorable arbitrage opportunities to other regions, including Asia. Even though the WTI Houston M1 vs. M2 spread remains in slight backwardation, the above-mentioned weakness could see this spread retest parity over the coming weeks.  

WTI M1 vs. M2 spreads, $/bbl

Source: Argus Media

Atlantic Basin: Ukrainian drone attacks hit Russian refineries and Kazakhstan’s CPC infrastructure

The past months have seen several Ukrainian drones strikes on Russian refineries, with the most recent ones including attacks on Lukoil’s 360 kbd Volgograd refinery and Gazprom’s 60 kbd Astrakhan condensate splitter on 3 February. Operations at both facilities have been at least partially halted, with our estimates seeing Volgograd runs reduced to around 275 kbd (-85 kbd to normal levels of 360 kbd) and capacity at Astrakhan to only come back online in August 2025. This week, one drone also hit Rosneft’s 200 kbd Syzran refinery, however no major damage has reportedly occurred. These incidents prompted us to revise our estimates on Russian refinery runs lower by 150 kbd in February and 130 kbd in March. We now see outright levels now fall from 5.55 Mbd in January to 5.2 Mbd in February and rebound slightly to 5.26 Mbd in March, as some refineries are coming back from outages next month. Due to lower domestic crude demand, we expect elevated crude exports out of Russia in February, with flows finishing January at 3.2 Mbd. Continued attacks on Russian refineries have supported middle distillate cracks in the WoS. We already saw a decline in Russian gasoil/diesel exports over the past few weeks and a curb in refinery operations will further squeeze availability. This should be compounded by already tight gasoil/diesel market in PADD 1 and upcoming European refinery maintenance in Europe and the US (2.4-2.5 Mbd offline in Feb-Mar).

Russian refinery crude intake, kbd

Source: Kpler

Kazakh CPC exports ended January at 1.2 Mbd, the highest level in six months, and continued at elevated levels in early February. However, March loading programs initially projected record exports of 1.7 Mbd—driven by the Tengiz field expansion to around 900 kbd—now appear increasingly unlikely due to recent disruptions. Ukrainian drone strikes have not only damaged Russian refineries but also Kazakh oil infrastructure in Russia. On February 17, drones targeted the Kropotkinskaya pumping station along the CPC pipeline. According to Russian operator Transneft, repairs could take up to two months, potentially reducing flow rates by 30%. Russian President Vladimir Putin has urged foreign shareholders, including Chevron and Kazakhstan’s Kazmunaigaz, to assist with repairs despite sanctions. The attack coincided with US-Russia negotiations over the Ukraine war. Kazakh crude accounts for 85% of CPC supplies, with the remainder coming from Russian producers. If the CPC infrastructure remains offline, March exports could drop from the planned 1.7 Mbd to 1.2 Mbd, necessitating supply reductions. This would likely support spot premiums for alternative Mediterranean grades, such as Algerian Saharan Blend and Azeri BTC Blend.

Kazakh CPC crude exports, kbd

Source: Kpler

A series of power outages at the Johan Sverdrup field—beginning with a disruption on February 4, followed by a smoke incident at the Haugsneset converter station, which connects the platform to Norway’s hydro-dominated grid—has caused supply volatility in recent weeks. The disruption affected multiple fields, including Johan Sverdrup, Gina Krog, and Gudrun, triggering temporary shutdowns and lifting differentials for the medium sour grade. However, with production swiftly restored and no structural supply constraints emerging, the overall impact on crude availability has been marginal. Despite initial concerns, Equinor has maintained its February and March loading schedule at 716 kbd, reinforcing that supply remains steady. However, we expect Johan Sverdrup exports for February to dip below 680 kbd, driven more by weaker buying interest than a fundamental supply shortage. Refiners have become increasingly resistant to elevated Johan Sverdrup pricing, particularly as competing grades offer more attractive economics.

Johan Sverdrup differentials against North Sea Dated have climbed from an average of $1.10/bbl (Jan 23 - Feb 4) to $1.65/bbl over the past 10 days, driven by the anticipated supply disruptions from repeated power outages, slower-than-expected loadings, and tighter medium sour availability in Northwest Europe. However, we expect differentials to start easing, as the limited supply impact from recent outages fades and the resumption of Russian crude flows to Asia increases competition, likely putting further downward pressure on Norwegian barrels. European refiners, including Poland’s Orlen—a long-time buyer of Johan Sverdrup—are reportedly shifting toward lighter grades such as Brent and Ekofisk, which currently trade at a discount to medium barrels. Additionally, the recent expansion of the TAL pipeline has further diversified supply options for Central European refiners, dampening demand for Johan Sverdrup. With its landed prices at Trieste/Omišalj at least $3/bbl higher than competing grades like Basrah Medium, the grade has become less attractive in the current market.

Johan Sverdrup differentials, $/bbl

Middle East and Asia: Middle Eastern grades under pressure as China absorbs more Russian and Iranian oil

The ongoing correction in Dubai crude’s backwardation is gathering momentum. The Dubai M1 vs. M3 spread has fallen by another $0.30/bbl over the past week, averaging $3.07/bbl and dipping below the critical $3/bbl threshold in recent trading, although it went back above it yesterday. This decline is primarily due to the recovery in Iranian and Russian crude shipments into China, mitigating earlier fears of supply disruptions stemming from US sanctions imposed on Russian oil shipments on January 10.

Despite initial concerns, Russian crude flows to China have remained resilient. While imports have declined from 1.24 Mbd in December to 913 kbd in February mtd, arrivals are expected to exceed 1 Mbd by month-end as sanctioned tankers continue to secure buyers in China. Similarly, Iranian crude arrivals have surged, jumping from 900 kbd in January to 1.4 Mbd mtd, with additional volumes expected to land in the coming days. This resurgence could push Iran’s monthly exports close to their historical peak of 1.83 Mbd, reducing demand for non-sanctioned Middle Eastern barrels and weighing on Dubai spreads.

Dubai M1 vs M3 spread and Brent-Dubai EFS, $/bbl

Source: Argus Media

In tandem with Dubai spreads, other Middle Eastern medium sour crude grades are also adjusting downward as panic-induced demand from Asian refiners subsides. Abu Dhabi’s Upper Zakum remains overpriced at a $3.10/bbl premium to Dubai, despite its similar quality. Other grades have already started correcting

• Al Shaheen’s differential to Dubai has declined from $4.72/bbl in mid-January to $3.35/bbl, a $1.37/bbl drop.
• Das crude’s differential has similarly fallen from $4.65/bbl to $2.32/bbl, shedding $2.33/bbl over the same period.

Given the increased availability of Russian and Iranian crude, Shandong buyers are expected to reduce purchases of non-sanctioned Middle Eastern crude, further pressuring prices, a boon for large buyers of these unsanctioned Middle Eastern grades such as the large Chinese independents Hengli and Shenghong or Indian state-owned refiners.

Combined exports of Das, Upper Zakum, Al Shaheen and Qatar Marine grades by destination countries, kbd

Source: Kpler

As noted last week, Beijing’s retaliatory tariffs on US crude are distorting trade flows, significantly reducing Chinese imports of US grades. Arrivals have dropped by 72 kbd m/m to 122 kbd so far in February, with only two cargoes—one WTI and one medium sour ANS—discharging after February 10. We expect total US crude imports into China to fall further to just 86 kbd for the full month, with no waiver grants reported for refineries looking to continue imports.

Consequently, US crude barrels are being redirected to alternative Asian markets:

• South Korea’s imports of US light sweet crude have surged by 152 kbd m/m to 576 kbd, the highest level since July.
• ExxonMobil’s Jurong refinery in Singapore has ramped up Midland crude intake, averaging 407 kbd mtd, up 276 kbd m/m, and on track for a record high.

This flood of US light sweet crude into Asia-Pacific—excluding China—has softened regional crude differentials:

• Malaysia’s Tapis crude differential to NSD has declined from $4.10/bbl to $3.20/bbl in just a week.
• Vietnam’s Bach Ho has fallen from $4.60/bbl to $4.00/bbl.
• Malaysia’s Labuan crude has weakened from $8.30/bbl to $7.40/bbl.

Asia-Pacific imports of US Crude by destination, kbd

Source: Kpler

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