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Europe’s Oil Market Flashes Price Weakness on Refinery Halts - BLOOMBERG
(Bloomberg) -- European crude prices have slumped to multimonth lows as the continent’s refineries start to take plants offline for regular maintenance, another cloud hanging over an oil market that’s largely wiped out its year-to-date gains.
Values are falling from the North Sea to the Mediterranean. A grade of Kazakh oil sank to the lowest in more than two years last week, while the UK’s Forties crude that helps to set the benchmark price for barrels around the globe traded at its weakest since May. US oil delivered to Europe is also the softest in several months.
The price weakness reflects a mix of unplanned disruptions at refineries and the scheduled maintenance season that usually starts in March and dents crude consumption. Already about 720,000 barrels a day of refinery capacity is offline in northwest Europe, according to data compiled by Bloomberg. Permanent plant closures in the region, including in Scotland and Germany, are also looming.
“Physical light crude in northwest Europe is weak,” said Neil Crosby, an analyst at Sparta Commodities SA. The move is likely a result of forthcoming refinery maintenance, he added.
The weakness in markets for real barrels comes as benchmark Brent crude futures have all but given up their gains for the year in recent days, after topping $80 a barrel last month. But while supply concerns centered on Russia and Iran linger, there have been no such worries in Europe and the surrounding Atlantic Basin region.
Oil produced in those areas is typically lighter and less sulfurous than crudes from the Middle East and Russia. Just as demand is slipping, supply of these so-called sweeter grades — which help to underpin global benchmark prices — is set to increase in both the North Sea and the Mediterranean.
Production of Kazakh crude is expected to gain by 300,000 barrels a day after the completion of expansion at the Tengiz field, led by Chevron Corp. Meanwhile, Norwegian oil giant Equinor ASA’s new field Johan Castberg will start pumping soon, potentially adding another 100,000 barrels a day or more.
The spate of weakness is also showing up in key gauges of the derivatives market that reflect the health of crude trading. The nearest Brent futures contract is registering its smallest premium to the next month in five weeks, a sign of a softer outlook. This week, weekly swaps contracts tied to North Sea crude were in the least bullish structure since the early days of the year.
The moves are being compounded by a long-term reduction in refining capacity. Petroineos is set to close its Grangemouth site in the second quarter of this year. Shell Plc is also reducing crude processing capacity at a German refinery.
“Light-sweet barrels have made up the majority of the production growth, while the conventional customer base in the Atlantic Basin is shrinking,” said Brian Leisen, an analyst at RBC Capital Markets. “We expect continued pressure on light sweets heading into maintenance.”
--With assistance from Jack Wittels.
