Jan. 15, 2021
We recently saw the news coming out of Norway regarding the plans to increase its oil, gas and condensate production by 19% to 2.38 million b/d by 2024. For 2020, the country announced its total production reached 2.0 million b/d, a sharp 15% increase from 2019 levels despite production cuts in the second half of the year offsetting the exciting ramp-up from the Johan Sverdrup field. With this in mind, we wanted to take a look at crude oil supply from the European continent and its implications for the short-term.
We are used to seeing numerous crude oil cargos from the US to Europe in what is a popular Aframax trade; in fact, it became the no.1 ton-mile generator for Aframaxes in 2020. Looking at the data so far this month, we see that those transatlantic cargos from the US to West of Suez destinations are significantly down from January 2020 levels (Figure 1). This, we believe, can be at least partially attributed to the increased supply from Europe with not only the aforementioned barrels from the North Sea, but also sustained Libyan production. Finally, we note that Russia and Kazakhstan will also be adding some regional crude supply following the recent OPEC+ agreement this month.
In combination with the lengthening of crude supply in Europe, refinery demand dynamics are also playing a role in the lower US crude export activity. In the European continent, a relatively “open” summer was followed by a strong second wave of coronavirus infections that brought back lockdowns and movement restrictions, thus negatively affecting demand. Despite the distribution of vaccines, the situation has not materially changed, with oil demand at the refinery level facing significant pressure. On the other hand, the US has observed more constructive demand dynamics, with crude oil inputs at US refineries up 600,000 b/d this week on a month-on-month basis.
Putting it all together, it makes sense to expect less crude oil exports from the US to Europe in the short-term as stable US crude supply is consumed domestically and European demand remains low. At the same time though, we wouldn’t be surprised to see Aframax cargos leaving European ports for the US over the next quarter, particularly for medium sour grades including Johan or even Urals.
Figure 1 – Aframax voyages (measured by actual loading date or proj. laycan) from the USG to West of Suez Destinations
Source: McQuilling Services