Europe’s crude oil market could be heading into another period of price pressure as traders warn that recent measures used to calm soaring crude premiums are beginning to lose their effect.
After weeks of temporary relief, market participants say tightening supply conditions are gradually returning, especially as the closure of the Strait of Hormuz continues to disrupt global crude flows.
In early April, crude grades traded in Europe surged to historic highs against the North Sea Dated benchmark, driven by severe supply shortages linked to the effective shutdown of the key shipping route. Several grades climbed above $20 per barrel premiums, significantly squeezing refinery profit margins across the region.
The sharp rise in crude costs forced governments and market participants to step in with emergency measures aimed at easing supply stress. These included releasing refined fuel inventories, drawing down floating crude storage, and increasing the movement of stored barrels into active markets.
Despite the broader market turbulence, some West African crude grades — particularly Nigeria’s Forcados blend — remained attractive to refiners due to stronger fuel yields and better processing economics.
Analysts at Argus Media noted that several major crude grades became unprofitable for European refiners during the height of the squeeze.
Refineries in northwest Europe reportedly suffered negative returns when processing staple grades such as America’s WTI crude, Norway’s Johan Sverdrup, and Brazil’s Buzios blend. The losses were largely driven by record-high crude premiums and soaring freight costs.
The calculations were based on Refinery Gate Values (RGVs), a method used to estimate how much value refiners can extract from processed petroleum products after subtracting crude purchase and transportation costs.
Mediterranean refiners also felt the pressure. Libya’s Es Sider crude reportedly became loss-making for some operators, while margins for processing Caspian CPC Blend narrowed sharply.
However, the market began to stabilise in May after two major developments helped cool prices.
First, China significantly reduced crude imports by nearly two million barrels per day through lower refinery runs, increased use of domestic stockpiles, and the resale of some cargoes into the spot market.
Secondly, crude releases from the United States added roughly 400,000 barrels per day of discounted oil into the European market for May and June deliveries.
Traders say these interventions prevented prices from climbing even higher and temporarily eased pressure on prompt crude markets.
As a result, refinery margins recovered from April lows, although profits remain below the record levels seen in March. Even so, current refining returns are still substantially stronger than average levels recorded at the start of the year.
Market participants now warn that the temporary supply cushion is fading quickly.
According to traders, excess prompt supplies have largely been absorbed, and June cargoes are already showing signs of tightening availability. Prices for crude deliveries scheduled further ahead are now trading at notable premiums compared to immediate supply cargoes.
One major indicator of tightening conditions is the widening price gap between prompt and forward cargoes.
UK Forties crude — which typically trades on a prompt basis — had traded at a premium to CPC Blend cargoes during April, reflecting immediate supply shortages. Since early May, however, the relationship has reversed, with prompt Forties now trading below later-arriving CPC Blend cargoes.
A similar trend has emerged in the US WTI market, where prompt deliveries are increasingly discounted compared to cargoes arriving one to two months later.
Energy traders believe crude differentials are unlikely to revisit the extreme highs seen in April, but many insist that a return to pre-war pricing levels remains unrealistic while the Hormuz disruption persists.
Additional signals from Dated-to-Frontline (DFL) contracts — a key measure of physical crude market strength relative to futures pricing — also point toward renewed upward pressure.
The May DFL strengthened from around $2–$3 per barrel in early May to above $5 per barrel by mid-May, while June DFL contracts followed a similar upward trend.
By comparison, Europe’s crude market appeared heavily oversupplied just a few months ago, with front-month DFL values turning negative in February and second-month contracts trading below $1 per barrel.
Analysts say the recent rebound highlights how fragile global crude balances remain, particularly as geopolitical tensions continue to disrupt major energy supply routes.