Russian Crude Losing Out as Iranian Oil Returns to Europe

Russian Crude Losing Out as Iranian Oil Returns to EuropeRussian Crude Losing Out as Iranian Oil Returns to Europe

The return of Iranian oil to the international market is hurting Russia’s main crude grade, forcing it to trade at the biggest discount in two years.

Russia's Urals crude, which is similar to Iran’s flagship blend, became the main beneficiary when the Persian nation was barred from selling oil in Europe in 2012 because of its nuclear program.

Since those sanctions were lifted in January, the Russian grade has suffered, according to four traders familiar with the market, Bloomberg reported.

“Iranian exports have been impressive,” giving refiners in Europe a wider choice of supply, Abhishek Deshpande, an analyst at Natixis SA, said. The discount of Urals grade in the Mediterranean to global benchmark Brent widened to $2.40 a barrel, according to traders monitoring the Platts window. That is the lowest since June 2014. Vitol offered the grade again on Friday at smaller discounts. It did not find a buyer.

Challenges unloading cargoes at the Italian port of Trieste—a major hub for refineries in Eastern and central Europe—are also contributing to pricing pressure for Russia, traders said.

Unloading at a jetty there slowed, with just four vessels each with a capacity of 1 million barrels loading since the start of April, compared with an average of four vessels a month in the first quarter. “This development for Urals is natural when Iran ramps up at the same time as there are strikes in several European refineries, hampering physical crude demand,” said Torbjoern Kjus, chief oil analyst at DNB Markets.

Three oil refineries in France have yet to restart completely, according to Total SA, which operates five plants in the country.

Iran has wasted no time in trying to regain market share, according to the International Energy Agency. Exports of crude last month reached 2.1 million barrels a day, almost pre-sanction levels, the agency said on June 14. Before sanctions were tightened four years ago, Iran shipped around 2.5 million barrels abroad. The flow of Iranian crude grades to countries in the European Union was 355,000 barrels a day in May, compared with 330,000 in April, according to tanker-tracking data compiled by Bloomberg.

“Iran has moved swiftly to reclaim its European customers,” the IEA said.