US crude exports to Europe hit two-year low in June

By Georgina McCartney and Robert Harvey

HOUSTON/LONDON (Reuters) - U.S. crude shipments bound for Europe fell to a two-year low in June as European buyers bought cheaper regional and West African oil, traders and analysts told Reuters.

Exports of U.S. crude to Europe slowed to 1.45 million barrels per day (bpd) last month, the lowest for any month since July 2022, according to data from ship tracking firm Kpler. That marks a 14% decline from May and down 27% from June 2023.

The fall came as a result of a narrowing difference between the price of U.S. benchmark WTI crude and European benchmark Brent crude, as Brent futures fell at a faster pace on average through May than WTI, as North Sea crudes weakened.

A narrow difference between the two makes it difficult to make a profit shipping U.S. crude to Europe.

Total U.S. crude exports to all destinations were 3.94 million bpd last month, down from 4.21 million bpd in May.

The bulk of the exports to Europe were WTI Midland crude, which has become a staple of European refineries' crude diets. The U.S. has become a major oil exporter due to the rapid rise in output that came with the shale revolution.

Growing flows of WTI into Europe led to the grade's inclusion in the dated Brent oil price benchmark by pricing agency S&P Global Commodity Insights in 2023, meaning that fluctuating U.S. export volumes can have a wider significance on oil prices globally.

FALL

West African grades became cheaper in May because of an overhang of supply, as Africa's top crude exporter Nigeria was in April struggling to offload cargoes for May loading, driving some sellers to reduce offers.

Nigerian Bonny Light differentials to Dated Brent have been on a downward trend the last couple months, said Gus Vasquez, Americas crude editor at price indexing agency, Argus Media.

That made West African grades more attractive than U.S. crude, said Patricio Valdivieso, Rystad Energy's vice president of oil markets research.

A narrower WTI-Brent spread makes it cheaper for European buyers to import dated-linked grades on shorter haul voyages rather than cargoes from the United States.

"The Dated complex was fairly weak, limiting Brent's ability to price in marginal U.S. sweets," said Energy Aspects analyst Richard Price.

In May, when June-loading cargoes would have traded, WTI's discount to Brent narrowed in 15 out of 23 sessions, and hit its narrowest since October at -$3.95 per barrel on May 30, LSEG data shows.

Taking freight costs into account, the WTI-Brent spread typically needs to average -$5 to -$6 per barrel for transatlantic arbitrages to be profitable, said Gus Vasquez, Americas crude editor at pricing agency Argus Media.

JULY REBOUND?

Lower exports of WTI Midland and a flurry of buying by trading firms Gunvor and Trafigura tightened the European market in recent weeks. That is likely to lead to a recovery of exports from the United States to Europe in July and August.

"The drop in U.S. crude exports has supported the value of Brent," veteran oil trader and director of Surrey Clean Energy Adi Imsirovic said.

A stronger Dated Brent market has also coincided with a weakening of crude prices in Asia.

"WTI Midland arbitrages are now workable to Europe but incredibly weak to Asia, which we expect to reroute WTI Midland exports towards Europe in July and August," Energy Aspects' Price said.

Weaker prices for UAE crude Murban are pricing Brent-linked crudes and WTI out of Asia, according to Sparta Commodities analyst Neil Crosby.

Increased Murban output has pressured prices for the grade, with its monthly average spot premium to benchmark Middle East Dubai quotes sinking to a one-year low of 83 cents a barrel for August-loading cargoes.

(Reporting by Georgina McCartney in Houston and Robert Harvey in London, additional reporting by Alex Lawler in London and Florence Tan in Singapore, Editing by Liz Hampton, William Maclean)