European sour traders look for Urals alternatives as embargo looms
The last remaining European buyers of sour baseload crude Urals are now searching for alternatives to the Russian grade in order to fulfill contracts and ensure refinery throughput, after its Dec. 5 ban by the EU, marking a seismic shift in the European refinery slates.
Kazakh crude CPC Blend has seen increasing demand as a light grade that can be easily blended with alternative sour crudes to produce a medium sour Urals alternative. One sour trader said they had purchased CPC Blend and Iraq's Basrah Medium in order to run them together to produce Urals for a term contract buyer. Kurdish Blend Test crude and CPC Blend were also being run together as Urals replacements, the trader said.
Basrah Medium was heard to be flowing to Europe more in the last month, a second sour trader said, adding: "It's a substitute for Urals."
Kpler shipping data supports this view with 77,000 b/d more Basrah Medium flowing to Europe in October compared with September. Some 377,000 b/d was bound for Europe in October compared with 129,000 b/d in December 2021, the last full month of voyage data before the war in Ukraine.
Shipping data for KBT reveals a steadily increasingly flow of the medium sour grade toward Mediterranean refineries. In October, KBT exports to Europe soared to 359,000 b/d, up 129,000 b/d on the month, according to Kpler.
"The KBT [price] is trending lower," a third sour trader said, adding that it was trying to attract Urals buyers with strong discounts.
This comes as Iraqi oil marketer SOMO lowered the official selling price for all its grades in November in a surprise move to claim greater market share in Europe.
"[SOMO and Saudi Aramco] have to make the prices palatable to compete with other regions like Latin American and other sour producers," another sour trader said.
Turning to the North Sea, traders said there was growing expectation that Forties would be run with Johan Sverdrup as an alternative to the Urals baseload.
"There's more interest in Forties as it [Urals] will be illegal in Europe in 30 days," said a North Sea trader, with a second saying it was "expected" there would be more interest in Forties in the December trading cycle.
Another alternative for sour traders has come from the sweeter Libyan grade Es Sider that has caught the attention of buyers as production spikes and OSPs remain competitive. Es Sider is a sweeter grade than medium sour Urals but is often deemed too sulfurous for sweet buyers in the Mediterranean basin.
"Libyan is competitive as usual and the OSP is cheap," said a Mediterranean trader, highlighting that it is attractive to buyers n the region as they looked for a cheap baseload grade.
Platts, part of S&P Global Commodity Insights, last assessed Es Sider Nov.3 at a 1 cent/b discount to Dated Brent.
As European Urals purchases fade ahead of the Dec. 5 embargo, Kazakh-origin Urals (KEBCO) has risen in prominence as a Mediterranean sour marker. Platts last assessed KEBCO at a $16/b discount to Dated Brent on a CIF Augusta basis, $7.94/b higher than Russian Urals Nov. 3.
"90% of Mediterranean refineries can now take KEBCO," the second sour trader said, highlighting the rise in importance of the medium sour grade. They added that it was now pricing independently of Urals as a standalone marketed grade.
However, the third sour trader said some end-users were still wary of the grade as it transports through the Russian pipeline system leading to the molecules comingling. "With the Dec. 5 Embargo coming in, more and more people definitely realize they have to be cautious on these purchases," they added.
Kpler shipping data reveals more buyers in the KEBCO market. In the first month of data in August, 75% of cargoes of Kazakh-origin crude went to a KMG-owned refinery in Romania, but in the most recent month of data in October that number has declined to 33% with buyers from Spain, Italy, Rotterdam and Poland joining the list of new KEBCO buyers.
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