Europe increased purchases of Russian Oil before new sanctions
2023.01.16 12:02
Europe increased purchases of Russian Oil before new sanctions
By Kristina Sobol
Budrigannews.com – As the clock ticks down to the Feb. 5 European ban that is expected to tighten supplies, redraw global shipping routes, and increase price volatility, European traders are rushing to fill tanks with Russian diesel.
Europe hopes to make up for a diesel shortage caused by the ban with Chinese fuel, some of which will be made from Russian crude.
Comparatively to a year ago, China has increased its first batch of 2023 export quotas for refined oil products by nearly half.
Mark Williams, research director of short-term oils at consultancy Wood Mackenzie, stated that its diesel exports, which are likely to account for the majority of the quotas, could reach 400,000-600,000 bpd between January and June.
Energy Aspects analysts stated, “However, without Chinese exports pushing swing barrels westward, Europe is unlikely to replace the 0.5 million bpd loss in Russian diesel exports when the embargo comes.”
Energy analytics firm Vortexa reports that European diesel imports from Russia have reached 770,000 barrels per day (bpd) so far this month, the highest level since March of last year.
According to Rohit Rathod, senior oil market analyst at Vortexa, “European buyers are rushing in to import as much as they can before the ban.”
Since Russia’s refineries are unable to produce enough diesel to meet domestic demand from its extensive diesel car fleet, Russia has long been Europe’s primary diesel supplier.
According to data compiled by Refinitiv, Europe relied on Russia for nearly half of the diesel, or middle distillates, it imported last year, even as businesses and governments attempted to cut economic ties with Russia following its invasion of Ukraine.
Starting on February 5, the EU will expand its December ban on Russian crude imports to include refined fuels.
It is anticipated to have a cost and cause a sudden shift in trade flows.
When compared to the data provided by Refinitiv Eikon, WoodMac anticipates that diesel margins to crude will reach an average of $38/bbl in the months of January through June. This figure is more than double the average for the six months from 2018 to 22.
“Complex logistics and shipping costs will continue to drive up diesel prices. According to Rob Turner, PwC UK sector leader for Energy and Resources, “that complexity, which is consequently reducing market liquidity, is likely to keep refining margins on diesel up in the same manner as we saw in 2022.”
Turner emphasized that prior to the conflict, Europe relied on blending Russian middle distillates, upgrading and desulphurizing off-spec Russian grades, and utilizing diesel-rich Urals crude in the refining system.
According to data from the Dutch consultancy Insights Global, retailers have rushed to stock up on diesel ahead of the ban, with regional inventories reaching their highest level since October 2021 in the week ending January 12. Energy Aspects stated that after the ban takes effect, stock prices are anticipated to fall.
In recent months, some of the largest tankers in the world with a capacity of 2 million barrels of oil have been chartered to bring diesel from Asia and the Middle East into Europe.
However, fuel delivery to northwest Europe from Russia typically takes a week, whereas cargo delivery from the East typically takes up to eight weeks, resulting in higher freight costs.
In a sign of the redrawing of trade routes, Latvia, which shares a border with Russia, imported its first cargo of diesel from China this month.
According to Matt Wright, senior freight analyst at Kpler, demand for refined products tankers is expected to rise by 7.2% in 2023 compared to the third quarter of 2022 due to the longer shipping routes.
The demand for vessels for diesel delivery will rise as voyages become longer.
Alan Gelder, WoodMac’s head of oils research, stated, “We’re in for a bumpy ride for 12 weeks as global trade works its way out.” It will be significantly more volatile.”
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