Recovering oil supplies from the Middle East and Russia, combined with weak Chinese demand, are keeping global crude markets well supplied despite temporary disruptions in Canada, Kpler said in a Tuesday analysis.
Non-Iranian crude and condensate flows through the Strait of Hormuz reached 2.9 million barrels per day in June month-to-date, the highest level since the conflict began. Increased exports from the UAE, Iraq and Kuwait drove much of the recovery.
Ship-to-ship transfers near Fujairah accounted for another 1.56 million b/d that remain difficult to trace, according to Kpler.
Improving security conditions have supported the rebound. US President Donald Trump recently said about 100 million barrels of oil moved through the strait during the past month, broadly matching Kpler's estimate of 98 million barrels since May 1.
Despite the improvement, market conditions remain constrained. About 80% of Hormuz transits now involve dark activity, while total Persian Gulf crude and condensate exports averaged 3.76 million b/d month-to-date, far below pre-war levels of about 15 million b/d.
Inventory withdrawals rather than fully restored production have fueled recent export growth. Floating storage volumes in the Persian Gulf, excluding Iran, have fallen by 69 million barrels since late April, including declines of 13 million barrels in Basrah Medium, 8 million barrels in Arab Extra Light, and 7 million barrels each in Arab Light and Das crude.
Kuwait has relied on inventories to support exports, reducing storage by 7.6 million barrels over the past two weeks, equivalent to roughly 580,000 b/d, according to Kpler.
Signs of production normalization are emerging in the UAE, where stronger activity at Upper Zakum and Das and increased Adnoc marketing efforts indicate a gradual recovery in output, Kpler said.
Asian buyers secured most of the 12 million barrels of Upper Zakum crude recently sold by Adnoc, which also offered Zakum cargoes from Sidi Kerir into the Mediterranean in an uncommon move to reach additional markets.
Kpler increased its estimate for UAE crude output to 3.18 million b/d in May, up from 2.60 million b/d in April and 2.28 million b/d in March, although production still trails pre-war levels by about 720,000 b/d.
Greater crude availability from the Persian Gulf has yet to revive Chinese buying interest. Sinopec declined to nominate Saudi cargoes for July despite a $6-per-barrel reduction in Saudi Aramco's Asian official selling prices, Kpler said.
Compared with rival grades, Arab Light remains relatively expensive. Kpler said the crude trades at a $9.50/bbl premium to Oman-Dubai benchmarks and lands in Northeast China at more than $10/bbl above ICE Brent.
Alternative supplies continue to hold a pricing advantage in China. Brazilian Tupi and Norwegian Johan Sverdrup cargoes arrive at premiums of about $7/bbl to $7.50/bbl, while Russia's ESPO and Urals trade at roughly $1.50/bbl and negative $1/bbl, respectively, according to Kpler.
Saudi Arabia shipped 3.74 million b/d from Yanbu in May, down 400,000 b/d from the prior month, as stronger domestic refinery demand, rising Gulf exports and subdued Chinese buying reduced overseas shipments, Kpler said. China's seaborne crude imports are expected to stay near May's 6.7 million b/d level.
Severe weather across northeastern Alberta, including wildfires, flooding, and thunderstorms, disrupted operations at Cenovus Energy's (CVE) Foster Creek and Christina Lake facilities.
The company declared force majeure, temporarily curtailing roughly 4% of its bitumen production, tightening heavy crude availability in the Canadian market.
The supply disruption quickly tightened heavy crude balances, with the July WCS discount at Hardisty moving to around $12/bbl under Nymex, a three-month high, while WCS Houston narrowed to a discount of roughly $2.70/bbl.
At the same time, weaker demand for diluent pushed Fort Saskatchewan condensate to nearly a $9/bbl discount to Nymex, its weakest level since June 2022.
Although recent rainfall has helped contain the wildfires, uncertainty remains around the timing of a full recovery at Cenovus' affected assets.
Until production returns to normal levels, Canadian heavy crude markets are likely to remain relatively tight, supporting heavy oil differentials in the near term.
Russian crude exports climbed to multi-year highs in May, averaging nearly 3.9 million b/d, as refinery outages caused by Ukrainian drone strikes reduced domestic processing demand.
With less crude being refined at home, more barrels were directed to export markets, increasing the availability of Russian crude globally.
Recovering refinery operations are likely to reduce Russian crude exports in June. Kpler expects offline refining capacity to shrink to about 300,000 b/d by July from 2.9 million b/d in May, while crude production rises to 10.14 million b/d in June and 10.2 million b/d by August.
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