Contest for Oil Like Russia’s Is Finally Heating Up for Europe

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(Bloomberg) — European oil refiners, which have been successful without long-standing deliveries of Russian crude, are now struggling with similar supply losses from northern Iraq and surprising production cuts by some of the world’s top producing nations.

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Flows from Russia – formerly the EU’s top supplier – have plunged by more than one million bpd since the country’s invasion of Ukraine in February last year, amid increasingly stringent sanctions.

Those reductions are now starting to feel heavier as Iraq has stopped shipments reaching Europe via Turkish ports in the Mediterranean Sea. In addition, OPEC+ producers including Russia have announced supply curbs starting next month that will cut production by around 1.6 million barrels per day in July.

For Europe, the loss comes at an inopportune moment. The Russian and Iraqi grades have similar densities and quality of sulfur, and refineries in Asia – especially China – are increasing demand for the so-called medium acid oils that form their staple foods.

“A tough battle between Europe and Asia awaits, and Asia could beat Europe for barrels, potentially triggering European production cuts to balance the crude market,” analysts at Energy Aspects Ltd. Amrita Sen and Christopher Haines said in a recent note discussing global oil markets, including medium acid crudes.

In March, the EU imported 95,000 bpd of Urals from Russia, compared with nearly 1.2 million bpd in February last year, according to data compiled by Bloomberg. All cargo shipped to Bulgaria is exempt from EU sanctions on seaborne imports of crude oil from Russia.

Europe has replaced at least a quarter of Russian supplies with crude from the Middle East since spring 2022, according to Energy Aspects. Flows from the Atlantic Basin, from Norway and Angola to the US, also increased in the first three months of this year, the International Energy Agency said in its monthly report earlier this month.

But now there are further wrinkles from the Middle East. Since last month, about 450,000 bpd of crude supplies from Iraq’s Kurdish region have been halted amid disputes over payments. In March, at least 169,000 barrels per day of this oil — shipped through Turkey’s Ceyhan port — was shipped to EU countries, according to tanker tracking data.

Read More: Tankers Tired Of Waiting For Iraqi Kurdish Oil To Depart After A Month

The restraints added to the tightening in the medium-acid crude market, as Middle Eastern producers also used more of their own oil to increase processing at new domestic refineries.

In the Mediterranean, prices for grades such as Iraq’s Basrah Medium, which are usually heavily discounted compared to others because of their sulfur content, have risen to levels many traders consider too expensive.

Greek refiner Hellenic Petroleum SA also issued a rare tender – its first in two years – to buy fast supplies from Basrah Medium. Some traders said the move signaled the tight availability of the barrels on the spot market amid the Kurdish loss in value.

–With help from Anthony Di Paola.

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