European, African oil market gets tighter as Asia buys more
By Robert Harvey and Alex Lawler
LONDON, March 30 (Reuters) - The European and African oil market is showing more signs of tightness with some crude differentials hitting record highs as peak summer demand nears and Asia seeks supplies to fill shortages caused by Iran's blocking of the Strait of Hormuz, now into its fifth week.
The Iran war has forced the shutdown of at least 10 million barrels per day of oil from the Middle East due to Iran's effective closure of the strait, and attacks on Iranian and other Middle East Gulf nations' energy infrastructure. That production volume represents at least 10% of daily global oil consumption.
Asia has been most affected by oil and gas disruptions, as it is the world's largest oil-importing continent and relies on supplies from the Middle East. The Middle East Dubai oil benchmark hit an all-time high of $169.75 on March 23, breaking Brent futures' previous record of $147.50 set in 2008 to become the most expensive oil benchmark ever.
In an example of tightening markets, North Sea Forties crude surged to a $7.20 per barrel premium to dated Brent on Friday, the highest on record according to LSEG data. The paper markets surrounding North Sea physical prices also show tightness. The first week of the short-term Brent swaps curve, known as contracts for differences, which indicates the dated Brent value, was trading $12.35 a barrel higher than the contract six weeks ahead on March 27, also a record.
"Globally, there are fewer barrels available, so the people who need them are bidding prices up," said Neil Atkinson, former head of the oil markets division at the International Energy Agency and a veteran oil analyst.
Shortages and stiff competition from Asian buyers looking to secure valuable barrels elsewhere have pushed up prices for European buyers, Morgan Stanley analysts said on Monday.
ASIA BUYING MORE OIL FROM EUROPE, AFRICA
European gasoline cargoes are heading to Asia after Asian prices surged on tightening supply, and Asia is also taking more crude cargoes from Europe and West Africa, according to trade sources and shipping data.
"The supply being diverted east is coming out of the pool that Europe would otherwise use to balance itself," the Morgan Stanley analysts said, adding that more oil from West Africa, which can swing between European and Asian buyers, is heading to Asia. "North Sea cargoes are now moving east despite apparently unattractive paper arbitrage signals."
Crude and products shipments to Asia from Europe, plus key West African producers Angola and Nigeria, are set to rise by about 200,000 bpd in March from February to 3.72 million bpd, according to Kpler.
On Monday, U.S. WTI Midland crude, which helps set the dated Brent benchmark, traded at a record $9.50 per barrel premium to dated Brent for delivery to Europe, almost $8 higher than before the war started.
