European crude markets have shifted into contango as strong supply continues to pressure physical differentials, Kpler said in a note on Wednesday.
A market in contango points toward surplus spot supply amid weak spot demand, reflecting bearish market sentiment. In a contango structure, futures prices trade higher than spot prices. In contrast, backwardation indicates strong near-term demand or tight spot supply, with futures prices trading below spot prices.
Kpler expects Atlantic Basin crude differentials to remain under pressure, with additional downside possible if Strait of Hormuz shipments recover in July and the US sanctions waiver allows higher Iranian crude exports.
The firm said rising production from Brazil, Guyana and Venezuela in the second half of 2026 could lift crude flows into Europe. It also expects Kazakh CPC Blend to retain its competitive advantage as the region's most economical light crude.
Kpler said Europe relies on the Middle East for only 5% to 6% of its crude imports, or roughly 500,000 barrels per day, limiting the region's exposure to supply disruptions.
As crude imports from the Middle East declined after disruptions in the Strait of Hormuz began in March, Europe increased purchases from the Americas.
Imports from the Americas reached a record 3.9 million b/d in May before easing to 3.2 million b/d in June, led by stronger flows from the US, Brazil, Guyana, Mexico and Venezuela, according to the note.
Europe also increased purchases of Kazakh CPC Blend, with imports averaging 1.3 million b/d between March and June, up 180,000 b/d from a year earlier. Kpler said the maintenance delay at the 400,000 b/d Kashagan field until next year also supported exports.
High crude arrivals, combined with reduced refinery throughput caused by the European heatwave, labor strikes and low Rhine River water levels, kept European Union-27 crude inventories elevated at 337 million barrels in June, only 4 million barrels below the previous month, Kpler said.
Alternative shipping routes, weaker crude demand and inventory drawdowns helped global oil markets absorb the US-Iran conflict, while progress toward a US-Iran deal and a 60-day US sanctions waiver for Iran pressured prices, Kpler said.
The North Sea Dated Brent forward month M1-M3 spread reversed sharply, moving from a $6 per barrel backwardation early in the month to roughly $2/bbl contango by late June. Physical differentials across the North Sea, Mediterranean and West Africa also weakened toward pre-war levels.
In the Mediterranean, CPC Blend traded at around $4/bbl below North Sea Dated on a cost, insurance and freight August basis.
Azeri Blend fell to about $3/bbl above North Sea Dated, around half its late-May premium, while Es Sider traded close to parity with the benchmark through most of June.
Kpler said CPC Blend remains the cheapest light crude option for refiners in the Mediterranean and Northwest Europe.
The grade is expected to arrive in the Mediterranean at about $3.50/bbl below North Sea Dated Brent for September deliveries, compared with Es Sider at $1.55/bbl, Saharan Blend at $3.70/bbl, WTI Midland at $4.30/bbl and Johan Sverdrup at $7.85/bbl.