HOUSTON/LONDON: U.S. crude cargo prices have retreated from recent price spikes while prices in Europe and Asia continued to hit record highs almost seven weeks into the Iran war, as releases from the U.S. Strategic Petroleum Reserve and Venezuelan imports cushion domestic supplies, analysts and traders said.
The war in Iran has disrupted global oil flows with the effective closure of the Strait of Hormuz, a critical trade route, and damaged oil facilities across the region, driving the physical price of oil in Europe and the Middle East to record prices.
The U.S., however, as the largest producer of oil, has been able to tap reserves of medium, sour crude favored by its refiners, as well as recently available product from Venezuela, to buffer some of the supply shock.
Physical cargoes of Mars crude, a medium, sour grade produced in the U.S. Gulf of Mexico, traded at an outright price of around US$97 a barrel on Wednesday, according to data from Argus Media, down from the US$128.70 a barrel reached on April 2.
That contrasts starkly with European physical oil prices, which hit record highs of near $150 per barrel this week, while prices for Dubai benchmark crude in the Middle East became the most expensive benchmark ever at nearly US$170 per barrel.
"European and Asian buyers need prompt physical barrels. U.S. refiners sit on the supply side of that equation and are price-setters, not price-takers in the current crisis," said David Jorbenaze, global oil market leader at ICIS.
The U.S., as part of a coordinated effort with International Energy Agency members to respond to shortages due to the war, is releasing some 172 million barrels of oil from its Strategic Petroleum Reserve.
"The SPR release feeds into markets where Mars is going to directly compete," said Gus Vasquez, Argus Media Americas crude editor, "so an increase in its supply will have a downward impact on price, which we have seen historically when there is an SPR release."
VENEZUELAN CRUDE IMPORTS RISE
Much of the crude being released from the SPR is of medium, sour quality, as is Venezuelan crude, which more U.S. refiners have regained access to following the January U.S. capture of former Venezuelan President Nicolas Maduro.
The U.S. imported 295,000 barrels per day of Venezuelan crude in the first quarter, up 14% on the year and the highest quarterly total since the fourth quarter of 2018.
"The combination of SPR release, Venezuelan barrels, and high freight risk for Europeans and Asians is keeping a lid on the U.S. physical market," said Neil Crosby, analyst at Sparta Commodities, adding that from a sour perspective the region is currently well supplied.
Not all U.S. oil cargo prices have fallen, however. Light-density, lower-sulphur WTI Midland delivered into Europe, where refiners are scrambling for any alternatives to lost Middle Eastern imports, traded at an all-time high of uS$22.80 over dated Brent on Tuesday, or around US$142 per barrel.
"Mars is not usually exported as it's all consumed domestically, so the export-oriented WTI would be the one which has upside as there's more competition," Rystad Energy's vice president of oil markets analysis, Janiv Shah, said.
