Fuel for reflection: Saudi Arabia carves out a larger share of the oil market in Europe amid Russian upheavals

Saudi Arabia is positioning itself to supply more oil to Europe as traditional Russian barrel buyers seek to diversify ahead of looming sanctions in early December, and analysis suggests the trend could become more pronounced in 2023.
Russian crude has historically accounted for around a fifth of Europe’s raw diet.
Since the EU decided to impose sanctions on Russian barrels, key consumers have been trying to wean themselves from the medium-sour Russian Urals in favor of comparable grades in the Middle East. Regular European market suppliers such as the United States and West Africa have also stepped up with lighter, sweeter grades.
But even Middle Eastern producers – and particularly Saudi Arabia – who focus more on Asian markets, have looked west as major Gulf crude buyers, China and India, devour cheap Russian exports.
“Our assumption has always been that barrels from the Middle East, West Africa and the United States will replenish lost Russian supplies in Europe, with lost Russian supply volumes depending on policy and / or other exceptions,” he said. said Tony Starkey, analyst at S&P Global Commodities Insights.
The data is already providing interim signs of this trend.

Saudi crude oil exports to Europe increased steadily in 2022, with flows rising to recent highs, according to data from S&P Global ship tracking analysis and Kpler shipping data.
Saudi shipments to Europe jumped to a two-year high of 777,000 barrels per day in August, according to Kpler, and the flow reached an average of 600,000 barrels per day in 2022, the highest since 2019.
Saudi crude oil normally travels to Europe via two routes: directly by tanker from the kingdom’s main export terminals – Ras Tanura and Yanbu, and also from Sidi Kerir in Egypt via the SUMED pipeline.
The Netherlands, Poland, Spain, France and Italy were the top five destinations for Saudi oil in the region this year, and they were also all regular buyers of Russian crude. Croatia, Germany, Greece, Lithuania, Turkey and the UK also bought Saudi crude this year.
The European market may still account for only about a tenth of Saudi crude supply, but it will likely be a bigger outlet in 2023 for the kingdom, whose energy minister recently signaled that the world’s largest crude oil exporter was looking to supply. more to Europe.
“We are busy with so many governments. Just to give one example, Germany, Poland, the Czech Republic, Croatia, Romania and others,” Prince Abdulaziz bin Salman said at a recent industry event.
“They are going through a debottlenecking phase of their supply chains and supply systems to ensure we can get in.”

Saudi crude finds a wide range of European buyers in 2022

Competitive prices

Saudi Arabia has raised its prices to reflect new demand in Europe and has cut prices as it tries to compete with Russia in Asia.
National oil company Saudi Aramco announced its December 2022 barrel price on November 4 with a cut for most of its crude oil grades in Asian markets, but the official selling price for grades in Northwestern Europe has increased. .
The Arab Light benchmark was raised by 80 cents / b, setting it at a premium of $ 1.70 / b over the ICE Brent benchmark.
Meanwhile, the Urals have a discount of $ 23.6 / b over dated Brent due to the market avoiding Russian barrels and have seen a further expansion of 60 cents / b month over month.
“Rising prices at the North West European market seeks to capture the rise in prices from the upcoming EU ban on Russian crude oil imports by sea from December 5, which could further increase the demand for Saudi grades in Europe.” S&P Global analysts said in a research note.
So while Saudi Aramco slashed prices in Asia to defend its stance against the heavily discounted Russian barrels that poured into key consumers like India and China, it also took the opportunity in a market that could be vacated by Russia. in the last months.
“The Gulf states will export more oil and products to Europe and the United States,” said independent oil consultant Anas Al-Hajji, emphasizing global changes in crude oil flows and the importance of crude oil quality.

Quality and quantity

Russia Urals of similar quality to many Middle Eastern grades

The Russian Urals are classified as a medium acid grade, with a specific gravity of about 31.7 API and a sulfur content of 1.7 percent, according to the Platts Petroleum Periodic Table.
This makes it very similar in quality to other medium sour crudes such as Basrah Medium from Iraq, Arab Light from Saudi Arabia, Arab Medium, Arab Heavy, Iranian Heavy, Brazilian Mero and Oman Crude Export Blend.
The Saudi flagship Arab Light has a slightly lighter gravity at 33.3 API, while Arab Medium and Arab Heavy have a gravity of 30.9 API and 27.8 API respectively. However, these three are more sulphurous than the Russian grade.
Meanwhile, heavier crudes like Iraqi Basrah Heavy, key Latin American crudes, and Norwegian Johan Sverdrup can all be blended with lighter, sweeter offerings to produce something like the Urals, the lead analyst said. crude oil at Refinitiv Ehsan Ul-Haq.
“Europe has reacted well so far, but if demand increases significantly, especially due to sub-standard temperatures, supply may not be adequate,” said Ul-Haq.
With European demand hit by economic weakness and rising interest rates, vacillating supply may not be such a challenge anytime soon, but should it recover quickly, Saudi Arabia is well positioned to take advantage of the fact. that most of its competitors have been hit by constraints of production and capital discipline.
Saudi Arabia claims it has the capacity to pump up to 12 million barrels per day, but has produced around 1 million fewer barrels per day and is expected to further reduce production as OPEC + undertakes large cuts this month.
According to a monthly survey by Platts, the OPEC boss pumped 10.90 million barrels a day in October from 11.02 million barrels a day in September.
European oil refineries may need to tweak their lists and mix a little more, but the supply of Saudi crude will provide a long-term stable replacement for the Russian Urals.
Click here to access the interactive Platts Periodic Table of Oil

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