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Dude, Where's my Sour?

Oct 25, 2018 8:53:49 AM EST

Scary times lay ahead, as Halloween looms and Iranian sanctions beckon.  Despite a lesser drop-off in Iranian exports than expected, they still appear set for a roller coaster ride lower as we hurtle through November. With this white-knuckle ride in mind, shifts in crude flows have been underway as end-users make arrangements so they aren't left wondering: Dude, where's my sour?*

As India prepares to comply with the U.S. request not to import Iranian crude, we are seeing a pick up in sour barrels from elsewhere.

Last month, India imported Canadian crude for the first time since October 2017, with 1 million barrels of heavy sour Kearl discharging at Indian Oil's Mundra terminal. Ecuadorian heavy sour Napo is also a less typical grade to India, but two cargoes have been discharged in the last two months, both at Reliance's Jamnagar refinery. 

We are also seeing higher volumes of Kazakh light sour CPC blend and medium sour Russian Urals delivered to India in recent months, as shifting price spreads amid higher demand have pulled barrels away from Europe and toward Asia. 

India sour crude imports

As Urals traded at a multi-year high last month - given it is a good replacement for sour Iranian barrels - we have seen much higher flows towards Asia, at the expense of Northwest / Southern Europe. A similar situation has played out for Kazakhstan's CPC Blend. 
 
Loadings of the two grades last month bound for Asia were up around 600,000 bpd from the beginning of the year, while a corresponding drop was seen to Europe in September:   
 
CPC Urals to Asia ClipperData
 
But as Iranian exports hold up better than expected (as EIA highlighted via our ClipperData this week), Urals and CPC Blend price spreads have eased lower again. This is not only due to higher volumes of Urals being available amid Russian refinery maintenance, but also due to a record volume of OPEC crude bound for East Asia. This supply picture needs to tighten if the bulls want to gain control again. 
 
Iran crude production and exports ClipperData EIA
 
*I may have used this movie reference before, but last time it was in relation to sweet crude.

About the Author

Matt Smith

deciphers and distills what is most relevant across the energy complex into cohesive and pithy knowledge you can use. The belly laugh is a bonus.

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