Europe pays for US sanctions, buying more expensive Russian Urals

European refiners are paying the price for U.S. oil sanctions on Venezuela and Iran as they scramble to replace the sour crude Washington has blocked from the global market with increasingly expensive Russian oil, trading sources said and data showed.

Compounding the impact of sanctions, OPEC members have mainly cut sour crude output as part of their deal with allied producers to boost oil prices while a large, new refinery, designed to run on sour oil, has just started up in Turkey.

U.S. output is soaring and exports are set to jump later this year as new infrastructure comes online but it is not an alternative, being mainly light and sweet.

As a result, European refiners have been left competing to secure as much medium, sour Russian Urals as they can, pushing the differential of that oil to levels not seen since 2013.

“Urals is anchored in a positive zone versus dated Brent and there is no indication it will fall to a discount any time soon,” a trading source at a European oil major said.

In the Mediterranean, the differential for Urals typically trades at a discount of at least a dollar to benchmark dated Brent but since early November, the level has spiked and now stands at a premium of 70 cents a barrel.

For a 600,000-barrel cargo of Urals, that rise translates to an extra $1.35 million cost.