Labor strikes in the French refining sector are having a knock-on effect on the global oil market, as the resulting lost demand adds to the weakness caused by turmoil in the banking sector.
More than half a million barrels per day of oil processing capacity, about 0.5% of global consumption, will be shut down by industrial action this month, according to industry consultancy FGE. TotalEnergies SE is shutting down its largest plant in the country.
The action, to protest against the pension reform, is redrawing the picture of the supply of crude oil in Europe. It is also affecting export grades that normally go to the region from the United States and Africa and is even affecting spreads on some physical crudes in Asia, according to traders. Brent futures fell last week on concerns about the stability of the global banking system.
“The French strikes are certainly weighing on physical crude,” said Christopher Haines, oil analyst at Energy Aspects Ltd, a London-based research house.
High commodity rates are also reducing the appeal of West African and US barrels because European refiners’ first preferences are for the more local grades, he said.
In Asia, traders said the loss of French demand has helped make WTI Midland, a key US export grade, cheap enough to compete with Persian Gulf varieties such as Abu Murban crude Dubai.
Chinese oil giants including Unipec also continued to buy US cargoes and even picked up the North Sea’s Johan Sverdrup for the first time in three months.
Permian crude cargo prices for April loading in the US Gulf have also weakened due to the French strikes, which followed large flows of US crude into Europe earlier this month.
Still moving
In West Africa, the loss of French demand has only made it harder for crude from Nigeria, the top seller, to secure buyers, traders said.
Although the country’s cargoes for May are already trading, one shipment was sold this week to load this month. Traders said it was a very late transaction and highlighted weak buying interest in Europe.
Azeri Light, a popular grade in the Mediterranean, has been around $3 to $4 a barrel higher than benchmark Dated Brent recently, traders involved in that market said. That’s down from $6 to $7 a barrel in January.
–With assistance from Sherry Su and Sheela Tobben.
Photo Credit – iStock.com/Kachura Oleg
