U.S. heavy, sour domestic crudes have flipped to a premium over the typically higher-priced lighter, sweet grades, after Washington’s latest round of sanctions on Russian oil tightened global supplies of heavier barrels.
Heavy Louisiana Sweet (HLS), a heavy coastal grade delivered into Empire, Louisiana, traded at a premium to Light Louisiana Sweet, which goes into St. James, Louisiana, for four consecutive days this week, the longest period since the first week of January last year.
Matias Togni, founder of Next Barrel LLC said heavy and medium barrels are tightening across the globe due to U.S. sanctions on Russian oil trade.
“The market is short Urals now. Those barrels will have to come from somewhere,” Togni said.
U.S. President Joe Biden’s administration imposed its broadest package of sanctions so far targeting Russia’s oil and gas revenues on Jan. 10.
The majority of U.S. refineries along the Gulf Coast are designed to run heavier, sourer crudes. The new sanctions are expected to further squeeze global supplies of Russian Urals, a heavy sour crude, increasing competition among U.S. refiners with Asian buyers and others.
Meanwhile, continued cuts by OPEC+ have also strained the heavy crude market, as producers typically opt to cut production of that crude grade because it generally fetches a lower price.
OPEC+ members are holding back 5.86 million barrels per day of output, or about 5.7% of global demand, in a series of steps agreed since 2022 to support the market.
(Reporting by Georgina McCartney in Houston, Shariq Khan in New York; Editing by Daniel Wallis)