Europe Ships Oil as Far as Cuba and Australia
The Mediterranean is rapidly becoming the world's most oversupplied oil market, as exports from OPEC heavyweights Iraq and Iran, rising star Kazakhstan and the return of Libyan crude force traders to get creative in marketing their barrels.
Supply of virtually every key grade of crude in the region has increased in the last year, in spite of the benchmark oil price struggling to hold above $45 a barrel and showing a year-on-year loss of over 10 percent.
Low freight rates and fierce competition for buyers have unleashed unusual trade flows of Mediterranean crude and prompted some producers to get creative with blending to expand their client base.
Looking at combined exports of major grades from OPEC members Iran, Algeria and Libya, together with those from non-OPEC producers Russia and Kazakhstan, shipments of crude towards the Mediterranean have grown by some two million barrels per day (bpd) over the past year, according to Reuters calculations.
"The Med is becoming one of the world's most oversupplied markets and volumes will have to move out of the region," one veteran Med crude trader said.
Exports of CPC Blend, a light, sweet crude, rose to 1.0 million bpd in October, compared with an average of 600,000 bpd in recent years, largely driven by the first shipments from Kazakhstan's Kashagan field.
As Kashagan is ramping up output, CPC will be shipping around 1.4 million bpd in the next few years.
It is not the first time that the Mediterranean market has become oversupplied. Excess barrels have occasionally travelled outside the region to Asia and North America.
Industry sources, however, say cargoes are now travelling much further.
Reuters data shows a vessel with Algerian Saharan crude sailing as far as Australia and Cuba, while trader Glencore booked a cargo of Libyan crude for the 20,000-kilometer (12,500-mile) trip to Hawaii and Sweden bought Kurdish oil for the first time.
CPC is up against the return of Iranian and Libyan barrels, which had been frozen out of the market by international sanctions in the case of the former, and civil unrest and violence in the case of the latter.
Iran returned as a global exporter in January this year, increasing its exports of oil and ultra-light condensate to near five-year highs of 2.56 million bpd in October, from 1.07 million bpd in the same month of 2015.
Iraq ramped up exports to 3.89 million bpd in October from around 2.7 million bpd a year earlier, although most of its shipments abroad tend to head to Asia.
URALS IS THE NEW BLACK
Libyan output has virtually doubled to just shy of 600,000 bpd in the last two months and most of that total is exported.
Russia, OPEC's largest rival, has increased overall crude output to post-Soviet highs above 11 million bpd and a growing chunk of this has flooded into the Med all the way from the Baltic thanks to cheap freight rates.
Reuters data shows shipments of Russian crude from the Black Sea port of Novorossisk to the Mediterranean have remained largely steady in the year to date, compared with last year, while those from the Baltic have risen by 12 percent.
With its diversified pipeline infrastructure, Russia can send crude to the Mediterranean, the Baltic, China and the Pacific. Landlocked Kazakhstan has only one major option for rising supplies - the CPC pipeline to the Mediterranean - unless it expands an existing pipeline to China.
Traders say they anticipate that more refiners will try to blend CPC with other grades - such as Iraq's heavier Basrah crude - for Asian customers as one potential way of draining the glut.
But that strategy is not easy to implement given the amount of mercaptan - a harmless, pungent gas - in CPC.
"You have certain refineries in Italy ... which forbid refining CPC due to the proximity of the beaches and its awful smell," one veteran trader said.
Also boosting Med exporters is a narrowing of the premium of Brent oil over Dubai crude, which acts as a benchmark for Asian-based buyers, to its smallest in a year at around $2.05 a barrel. That move gives Brent-linked crudes such as Urals or Saharan an edge in Asia.