Middle East Supply Surge Triggers Global Crude Discounts

Global physical crude markets have been mired in discounts as Middle Eastern supply surges due to Iran's increased sales following a temporary reprieve from U.S. sanctions.

The 60-day interim deal between the U.S. and Iran allowed for some shipping to resume in the Strait of Hormuz, which normally handles a fifth of global oil and liquefied natural gas shipments.

Tehran is seeking sales beyond China as it ramps up oil exports, while Abu Dhabi National Oil Co, Kuwait Petroleum Corp, and Iraq's SOMO have also released cargoes stranded inside the Gulf, boosting prompt supply and depressing Middle East benchmarks Dubai, Oman, and Murban to discounts.

Cash Dubai slipped to a discount of 27 cents a barrel on Tuesday, with Oman and Murban widening to 96 cents and 67 cents respectively, according to Reuters data.

Rystad analyst Janiv Shah expects U.S. crude export premiums to Asia to erode as the weeks progress, while Kpler analysts note that Europe is becoming the clearing point for crude that either lost its eastern outlet or now screens cheap enough to travel west.