US Crude Grades Shed Iran War Premium as Energy Crisis Eases

7g9asy2rwre4q1jkvi88h5n8_media_dl_1.png US Energy Information Administra

Article content

(Bloomberg) — Key US oil grades have slumped to trade at a discount again as a gush of crude flows through the Strait of Hormuz and a recent spike in demand for American exports fades.

Article content

US sour crude benchmark Mars fell to the lowest level since early 2023 this week while oil prices in Houston, the Gulf Coast trading hub, weakened in recent days to levels not seen since the Covid-19 pandemic. 

Article content

Article content

Article content

The war in Iran sent premiums for US oil surging and drained inventories to the lowest in decades as buyers across Asia and Europe sought to replace supplies trapped in the Persian Gulf.

Article content

Article content

Now, early signs show that trend reversing as the largest energy supply crunch in history eases and investors brace for a glut in the near term.  

Article content

“Practically the whole market is getting weaker,” Neil Crosby, head of research at Sparta Commodities said in a interview with Bloomberg. With more sour crude exiting the Strait of Hormuz, US and Latin American oil grades are under pressure, Crosby added.

Article content

Medium sour US grade Mars traded at a $3 discount to Nymex futures Tuesday, the steepest discount since January 2023, according to Link Data Services. The surge in demand for US crude amid the Iran war sent Mars to a near $18 premium to futures in late March. But the grade returned to pre-war pricing in June and has continued to fall to multi-year lows.

Article content

The weakness in Mars also comes as increasing volumes of crude from the strategic reserve, similar in quality, hits the market. The US is proceeding with its plan to release all 172 million barrels from the emergency reserve despite a drop in oil prices. 

Article content

Article content

Meanwhile, Permian basin oil sold in the largest US export market of Texas traded at a discount to futures for the majority of last week, selling at the steepest discount since 2020 on Thursday. That Magellan East Houston grade, like Mars, saw a massive premium at the peak of the war, trading almost $8 more than futures prices as foreign buyers bid up export cargoes.

Article content

The price drops come as Asian nations, in particular, that drew heavily on US oil during the war lower their imports of US crude as freight costs surge. With a growing glut of Persian Gulf oil, some Asian refiners are even trying to resell their supplies to the US, a sharp shift from only weeks prior when the US was the back stop to global crude markets.

Article content

“WTI and other US grades’ export arbs are no longer looking particularly great, both due to physical weakness in competitor crudes from other regions, but also due to the narrow WTI/Brent spread,” Sparta’s Crosby said. The narrow spread between WTI and the global oil benchmark Brent is partly a function of low US oil inventories, particularly at the key pricing hub of Cushing, Crosby said.