Overheated Mediterranean oil market cools as refiners seek other grades

MOSCOW (Reuters) - Premiums for Mediterranean oil grades over dated Brent have eased in the past few days as European refiners turn to cheaper alternatives to Russian Urals and other crudes, traders said.

The price differential for Russia’s Urals oil surged well above $2 per barrel a week ago after the loading plan for July showed a 45% fall in exports from Baltic ports from June, but has pulled back significantly since then.

Urals crude oil premiums eased to below $1.50 per barrel on average this week in northwest Europe - down some 80 cents per barrel from a week ago, Refinitiv Eikon data showed.

Cargoes with prompt loading dates traded at a premium below $1 per barrel, market participants said.

“Sellers noticed refiners were well-prepared to leave the Russian grade aside, so they had to either limit their appetite or stay with unsold barrels,” a source with an international trading firm said.

European refiners expected Urals oil loadings to be low in July after a surge in Russian gasoline demand in June prompted producers to feed the domestic market. Exports have also been curbed by an OPEC+ output pact.

Refiners turned to alternatives available in the market - mostly U.S. oil, which remains relatively cheap, and Nigerian and Angolan crude, two traders said.

“We’ve seen sour refineries taking sweet barrels instead as it’s cheaper now,” a trader in European market said.

Caspian grades, Kazakhstan’s CPC Blend and Azerbaijan’s Azeri BTC have also dipped against dated Brent from recent multi-year records.

CPC Blend eased by $1 per barrel this week, while Azeri BTC is down by some 70 cents per barrel, according to Refinitiv Eikon data.

“The market got overheated after the quick transition from oil flood to supply deficit,” a trader with refiner in Mediterranean market said. “Now it’s trying to find a balance.”

Reporting by Olga Yagova and Gleb Gorodyankin; Editing by Jan Harvey