US oil floods Europe, hurting OPEC and Russia

MOSCOW/LONDON (Reuters) – As the Organization of the Petroleum Exporting Countries (OPEC)’s efforts to balance the oil market bear fruit, US producers are reaping the benefits – and flooding Europe with a record amount of crude.

Russia paired with OPEC last year in cutting oil output jointly by 1.8 million barrels per day (bpd), a deal they say has largely rebalanced the market and one that has helped elevate benchmark Brent prices close to four-year highs. Now, the relatively high prices brought about by that pact, coupled with surging US output, are making it harder to sell Russian, Nigerian and other oil grades in Europe, traders said.“US oil is on offer everywhere,” said a trader with a Mediterranean refiner, who regularly buys Russian and Caspian Sea crude and has recently started purchasing US oil. “It puts local grades under a lot of pressure.”US oil output is expected to hit 10.7 million bpd this year, rivaling that of top producers Russia and Saudi Arabia. In April, US supplies to Europe are set to reach an all-time high of roughly 550,000 bpd (around 2.2 million tons), according to the Thomson Reuters Eikon trade flows monitor.

In January-April, US supplies jumped four-fold year-on-year to 6.8 million tons, or 68 large Aframax tankers, according to the same data.Trade sources said US flows to Europe would keep rising, with US barrels increasingly finding homes in foreign refineries, often at the expense of oil from OPEC or Russia. In 2017, Europe took roughly seven percent of US crude exports, Reuters data showed, but the proportion has already risen to roughly 12 percent this year.

Top destinations include Britain, Italy and the Netherlands, with traders pointing to large imports by BP, Exxon Mobil and Valero.

Polish refiners PKN Orlen and Grupa Lotos and Norway’s Statoil are sampling US grades, while other new buyers are likely, David Wech of Vienna-based JBC Energy consultancy said.

“There are a number of customers who still may test US crude oil,” Wech said.

The gains for US suppliers could come as a welcome development for US President Donald Trump, who accused OPEC on Friday of “artificially” boosting oil prices.

“Looks like OPEC is at it again. With record amounts of oil all over the place, including the fully loaded ships at sea. Oil prices are artificially very high! No good and will not be accepted!” Trump wrote on Twitter.

Meanwhile, top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supplycutting deal even though the agreement’s original target is within sight.

The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy.

OPEC is closing in on the original target of the pact - reducing industrialized nations’ oil inventories to their five-year average. There is no indication yet, however, that Saudi Arabia or its allies want to wind down the supply cut.

Over the past year, Saudi Arabia has emerged as OPEC’s leading supporter of measures to boost prices, a change from its more moderate stance in earlier years. Iran, once a keen OPEC price hawk, now wants lower prices than Saudi Arabia.

Industry sources have linked this shift in Saudi Arabia’s stance to its desire to support the valuation of state oil company Aramco ahead of the kingdom’s planned sale of a minority stake in an initial public offering.