(Reuters] – The cash prices for the key grades of crude oil produced in Europe, America, and Middle East have dropped from record levels to futures benchmarks over the past week. Refiners are refusing to accept higher operating expenses and major countries get ready to pump a lot of oil out from strategic reserves.

Spot markets are often a good indicator of futures price direction. As of now, prices are being affected by the release of crude reserves from large consumers like Dubai, North Sea and West Texas. However, this is offset somewhat by the loss in Russian exports.

The premiums paid for Middle East benchmarks Dubai and Oman, as well as Murban crude, have dropped to one-third of the March peak. North Sea Brent and Forties have fallen 80%- 90% since the United States stopped Russian oil imports following the February 24th invasion of Ukraine. U.S. grades, such as Mars soured, are deteriorating due to the U.S. releasing more medium heavy crude oil onto the market. [CRU/M] [CRU/E]

For a related graphic on Middle East crude benchmark prices, click https://tmsnrt.rs/3JmSQAt

According to the International Energy Agency, 3,000,000 barrels of Russian oil and products could be lost per day starting April. Russia is the world’s second largest crude oil exporter, after Saudi Arabia. It exports approximately 4 to 5 million barrels per day. [IEA/M]

In order to make up the loss, the United States declared its highest-ever Strategic Petroleum Reserve release (SPR), which was 1 million barrels per days for six consecutive months beginning in May. That’s approximately 180 million barrels. On Friday, other members of the IEA agreed to let oil go after a March 1 release.

For a related graphic on North Sea, West African crude, click https://tmsnrt.rs/35IO1Tu

TIMELY DEMAND FOR NORTH SEA OIL AND AFRICAN OIL

Russia declared its invasion a special operation. Since then, the world’s futures market has become more backwardated. The current price levels of futures contracts are much lower than those from later dates, signaling tight near-term supplies.

Buyers have been reluctant to pay these record prices in recent years, preferring instead to draw down inventory. According to traders, this has resulted in an overhang of oil prices on West African markets.

According to a European trader, “Refineries tend to be cautious and shop around until the very last minute. SPR definitely makes the market a little less stressed in the coming six months, although there are still concerns of destruction of demand.”

Oil for April loading from Africa’s No. Angola, Africa’s No. 2 oil exporter, has not sold out, along with 10 cargoes of May crude oil, the traders stated. This is due to low demand from China, which trader said was their slowest sale in many years. Due to coronavirus infection, the Chinese government extended Shanghai’s lockdown to protect 26 million residents.

They also reported that supplies from Nigeria, the top exporter, were increasing. An overhang of crude oil cargoes arrived in April and May, reaching 40 or more,

For a related graphic on price spreads, click https://tmsnrt.rs/3r4XtrQ

One trader in West African oil said that with Asian buyers filling most of their needs and European refiners still not up to the task, it is only a matter time until offers drop.

According to them, India is now using cheap Russian Urals crude oil, decreasing its dependence on supplies from Africa and Middle East.

For a related graphic on U.S. spot crude premiums, click https://tmsnrt.rs/3rpz00D

THE MEDIUM SOUR PICKLE

The SPR release in the United States is anticipated to bring more medium-sour crude oil into the market. This will weigh on spot Mars crude. Mars Sour now trades at a discount of $2.40 to the U.S. benchmark from its $1.25 per-barrel premium in late February.

Traders said that the spread between Brent crude and U.S. West Texas Intermediate oil (WTI), along with increasing freight costs make U.S. exports less appealing.

Reducing crude oil prices may encourage refiners increase their output in order to satisfy peak summer demand, at a moment when diesel inventories worldwide are at the lowest level for more than 10 years.

For a related graphic on Global oil refining margins, click https://tmsnrt.rs/3DDCSQi