LONDON Efforts to stem the world's surplus of crude oil have thus far only moderately balanced the market – but have turned typically lower-quality crude into the most sought after barrels.
From China to the United States to the shores of West Africa, the fastest-selling oil this year has been the so-called "heavy" or "sour" grades with a higher proportion of sulfur, which can make road fuels toxic and usually has to sell at a discount to other grades.
Instead, eager buyers are outbidding each other for sour barrels, even as higher-quality light crude sits unsold, creating dramatic changes in the typical cargo movements and giving sellers of Russian, Angolan and sulfur-rich U.S. oil an edge over those with lighter oil.
"On the whole, there is a lack of medium and sour crude, which is leading (buyers) to look for alternatives," said Ehsan Ul-Haq, analyst with KBC.
The biggest cause is the deal led by the Organization of the Petroleum Exporting Countries, to slash 1.8 million bpd from global output from January in an effort to end a two-year excess that has pummeled prices.
The only two large OPEC producers of desirable "light" crude, Libya and Nigeria, were exempt from the cuts, meaning virtually all the lost barrels were sour.
At the same time, oil output in China, which is disproportionately sour, fell by nearly 7 percent in the first 11 months of 2016 due to investment cuts, while production in Colombia, another sour crude producer, fell sharply last year.
While heavy oil can be harder to process, some refineries, particularly those in Asia, are built to run it. Others need sour crude in order to mix with other oil in order to maximize equipment.
The scramble to replace the Saudi, Chinese and other sour barrels has turned price dynamics on their head.
"The sour crude is really very, very valuable," said Andrew Wilson, head of energy research with BRS Brokers. "I would expect Europe to be in a pretty big deficit of sour crude for a few months."
Angola's March oil exports, which are largely medium and heavy, nearly sold out in just a week; BRS data showed Angolan loadings for China hit 16 million barrels in the week to Jan. 20, compared with just six in the prior week.
Prices for sour Urals crude in northwest Europe hit parity with light CPC Blend as Polish, Finnish and Dutch refineries locked down cargoes. Even heavy U.S. crude oil Southern Green Canyon found a Japanese buyers due to the shortfall, while grades such as Mars could also head east.
Still, some traders warned that the strength could stop abruptly if the OPEC cut deal disintegrates – or if key members choose not to comply.
"Everything is so mysterious and uncertain with this OPEC deal, so it may work both sides: now it supports sour grades, but eventually we may see a totally different effect," one trader in European market said.
(Additional reporting by Liz Hampton in Houston, Catherine Ngai in New York and Florence Tan in Singapore, editing by David Evans)