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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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U.S. Sanctions, OPEC Cuts Create Rare Oil Price Shakeup

Due to tighter supply of medium and heavy sour crude oil, Middle Eastern benchmarks for sour crude grades have been trading higher than Brent Crude prices since the beginning of February in a rarely seen development in global oil prices.

On February 1, the cash Dubai crude price edged above Brent Crude for the first time since August 2015, according to S&P Global Platts data.

Three key factors have been tightening the global supply of heavy crude grades, thus pushing the prices of Dubai spot and DME Oman crude futures higher this month, traders and analysts tell Reuters.

First, OPEC is currently on a mission to cut supply again in a bid to rebalance the market and lift prices, and many OPEC producers do pump and cut from medium to heavy grades.  

Then there are the latest U.S. sanctions on Venezuela’s oil—typically of the heavy variety—which drives demand for heavy grades from other regions as buyers seek alternatives. This has also helped push the Dubai and Oman benchmark prices higher than Brent Crude’s—an unusual occurrence on the market, where lower-sulfur, sweet grades from the Atlantic basin and the North Sea are typically more expensive than the sour grades from the Middle East or Latin America. Related: Green New Deal Critics See Red

The third key reason for Middle Eastern sour crude to trade higher than Brent is the uncertainty over whether the U.S. will extend waivers (if any) to Iran’s oil buyers when the current exemptions expire in early May.

According to traders who spoke to Reuters, prices of the U.S. Mars grade and of sour grades from Latin America like Colombia’s Castilla have jumped as interest has also significantly increased after the United States announced sweeping sanctions on Venezuela’s oil sector at the end of January.

After the sanctions were imposed, the heavy sour grade Castilla and Vasconia, a medium sour grade from Colombia, saw their prices jump last week to their highest since September 2017, as per S&P Global Platts data.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on February 11 2019 said:
    US refineries can replace the 500,000 barrels a day (b/d) of extra-heavy oil they used to import from Venezuela with Canadian tar sand oil which is extra heavy like Venezuela’s or get supplies from the Middle East. However, with OPEC cuts, supplies of heavy crude have become tighter hence the rise of their prices.

    The United States has no alternative but to extend the sanction waivers it issued to eight countries around the world in November last year or issue new ones when they expire in May this year if only to use them as a fig leaf to mask the fact that their zero oil exports option is out of reach and that US sanctions against Iran have failed so far to cost Iran the loss of even a single barrel from its oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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