Facing record oversupply, U.S. oil looks for a home in Europe

Fri Mar 4, 2016 4:56am EST
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By Libby George and Amanda Cooper

LONDON (Reuters) - As U.S. oil inventories reach all-time highs, cargoes of crude are increasingly flowing towards Europe, where higher prices and lower shipping costs have made the region an attractive hunting ground for those selling light sweet oil.

Sources told Reuters at least three cargoes of U.S. crude that are likely to cross the Atlantic from the U.S. Gulf Coast in the coming few weeks.

Others said offers of a variety of grades, particularly WTI, are coming for April and May arrival for buyers who want them.

Since the U.S. Congress late last year abolished the more than 40-year-old restriction on U.S. crude exports, Reuters data shows a number of cargoes of crude, in addition to ultra-light condensate or fuel oil, have reached Europe and the Mediterranean.

"A decent amount of U.S. crudes are now being shown into Europe – mostly light grades. Some majors are already offering," a trader said. It had the potential, the trader added, to "put some pressure on the sweet North Sea and Mediterranean."

U.S. crude oil stocks are now at a record 518 million barrels, after one of the largest weekly builds in the last year, according to the latest figures from the Energy Information Administration. [EIA/S]

The window of opportunity to sell into Europe, or arbitrage, as reflected by the premium of benchmark Brent LCOc1 over WTI crude futures CLc1, is around $3 a barrel, up from a discount of around 90 cents in early January.

The more favorable price spread is driven in part by supply disruptions in Europe, including a force majeure on Nigeria's Forcados, a European refinery staple, that sources said could last until March as well as disruptions to Kurdish oil supplies.   Continued...

Pumpjacks and other infrastructure for producing oil dot fields outside of Watford City, North Dakota January 21, 2016. REUTERS/Andrew Cullen