In a rare turn of events due to a drastic reduction in oil imports from China, Europe has secured shipments of oil from Oman and the United Arab Emirates to address the unprecedented supply disruption caused by the Iran conflict. It is reported that this oil from the Middle East is expected to arrive in Europe in July.
According to Bloomberg on Thursday, trade sources revealed that at least six super oil tankers are carrying a total of 12 million barrels of crude oil from the UAE and Oman, set to arrive in Europe next month. These trade sources requested anonymity as they were not authorized to discuss the matter publicly. One of the tankers has already departed from Iraq heading to Rotterdam.
In the early stages of the Iran conflict, traders initially scrambled to purchase oil from the Persian Gulf region. However, with China, the world’s largest oil importer, significantly reducing its own purchases, the market quickly stabilized. This prevented a larger spike in oil prices and provided other countries with the opportunity to acquire the oil that would have originally flowed to Asian countries.
Oman remains unaffected by the Iran conflict as its ports are located outside the Persian Gulf, allowing tankers to load oil and deliver it to customers without having to pass through the Strait of Hormuz. Some (but not all) of the UAE oil destined for Europe also comes from areas outside the Persian Gulf.
The report indicates that this unusual flow of crude oil is being driven by rare arbitrage trades following China’s withdrawal. Data from the PVM Oil Consulting company shows that the spread between Brent crude futures and the Dubai crude oil swap contract (EFS) widened from around $6.75 per barrel on May 29 to almost $10 last week. The expansion of the EFS has increased the attractiveness of Dubai crude (including Middle East origin crudes) to European refiners.
Preliminary ship tracking data compiled by Bloomberg shows that China typically imports 70%-80% of its crude oil from Oman, but the daily purchase volume in May has dropped to 65,000 barrels, significantly lower than the over 700,000 barrels in February. China did not purchase any crude oil from the UAE in May, whereas the daily purchase volume in February was 750,000 barrels.
Some analysts have questioned whether the sharp decline in China’s oil imports is a precursor to domestic consumption and economic conditions.
For the past few decades, Europe has only imported a small amount of crude oil from the Middle East, relying more on local supplies. Following the interruption of Russian oil imports due to the Ukraine conflict, Europe increased imports from the United States.
European refineries typically only purchase crude oil from Saudi Arabia and Iraq. Ship tracking data shows that no deliveries of Omani crude oil to Europe have been observed since August 2023.
In the year prior to the outbreak of the Iran conflict, Europe also did not import any oil from the UAE. However, in May, around 700,000 barrels of crude oil were delivered to the port of Milazzo in Italy from a ship-to-ship transfer near the Fujairah port in the UAE.