The huge discount of WTI Crude to Brent Crude has been supporting cheaper U.S. crude barrels bound for Asia, while West African cargoes, priced off dated Brent, have grown difficult to sell to Asian customers.
The wide WTI-Brent spread-$9 a barrel on Wednesday compared to $3-$4 a barrel just three months ago-is putting pressure on the arbitrage opportunity for West African grades, including crude varieties from OPEC members Angola and Nigeria, trading and market sources told Platts today. A recent increase in freight costs on the West Africa-Asian routes is also adding to the pressure.
Last week, Asian refiners took just a handful of Angolan crude oil cargoes in the first round of trading for the July tenders, while many Asian customers opted for large volumes of U.S. crude oil instead, market sources told Platts.
For example, Taiwan's refiner CPC, which usually buys West African crude grades, purchased 8 million barrels of WTI Midland instead of any crude varieties from West Africa for delivery in July, according to trading sources.
"The whole West African market is changing a lot because of the growth in US oil," a trader told Platts.
"Plus, you have Brazilian production going up, and a lot of those medium cargoes like Lula are getting shipped to China at very cheap levels, which will really curb the WAF flow to Asia," the trader noted.
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Earlier this month, Nigerian crude varieties also struggled to find buyers in Northwest Europe, which has also seen more offers of U.S. sweet grades that are directly competing with Nigerian grades.
U.S. crude oil and condensate exports to Europe have been surging lately, and traders expect the record pace to continue as U.S. oil is growing popular with European refiners, often at the expense of oil cargoes from OPEC nations and Russia. In Asia, U.S. crude oil exports have started to erode OPEC's market share, with the United States expected to export 2.3 million bpd of crude oil in June, including 1.3 million bpd bound for Asia.
By Tsvetana Paraskova For Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More