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US Oil Importers Brace for Ukraine Crisis Impacts

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Russia’s invasion of Ukraine and the resulting sanctions could disrupt the flow of Russian petroleum to the US.

While US sanctions have so far not directly targeted Russia’s oil sector and supplies have not yet been cut, some experts say that the fear of having cargoes become caught up in financial or shipping sanctions could dissuade buyers from sourcing oil from Russia.

Currently, the US imports some 600,000 barrels per day of liquid hydrocarbons from Russia. The bulk of these volumes are comprised of unfinished oils — products that are either upgraded in US refineries or serve as feedstocks within downstream operations.

Russia also ships some 182,000 b/d of crude oil to the US, according to the latest monthly data from the US Energy Information Administration (EIA). That could cause more price pain for US consumers and worsen the political headaches for the White House.

However, the US oil industry has options to make up for the potential loss of Russian supplies.

“Bottom line is that the US would feel some impact to the loss of supplies from Russia, but we are in a far better position than Europe,” said Andy Lipow of Lipow Oil Associates.

Importers

Recently, the bulk of US imports of Russian crude have gone to the West Coast, also known as Padd 5. Lipow noted that during the first 11 months of 2021, West Coast refiners imported some 99,000 b/d of Russian crude, or 46.9% of total Russian crude flows to the US over that time period.

Valero, Marathon Petroleum and PBF Energy would likely feel the bite of a disruption more than others.

Independent refiners Valero and Marathon Petroleum were the main importers of Russian crude in Padd 5 last November, sourcing barrels for their facilities in California and Washington, respectively.

Neither responded to requests for comment by publishing time.

Padd 5 refiners tend to run a medium, sour crude slate, well-suited to Russian barrels.

The East Coast downstream also buys Russian crude. Last November saw PBF and Delta Air Lines source a combined 57,000 b/d of crude from Russia for their Delaware City and Monroe facilities, respectively. That was higher than the 11-month average of under 50,000 b/d.

Marginal quantities of Russian crude also flow to refiners along the US Gulf Coast.

None of these volumes are structural or crucial to operations, according to John Auers of consultancy Turner, Mason & Co.

“Russian crude is more of an opportunistic piece of the crude slate," he said. "It’s not a baseload part of anybody’s crude slate."

Nor are flows of products or intermediate feedstocks of base-load importance, Auers added. EIA data show the US imported 487,000 b/d of Russian petroleum products in the first 11 months of 2021, out of total product imports of roughly 2.4 million b/d.

EIA data show unfinished oils from Russia flowed mostly to the US Gulf Coast, which is the largest refining hub in the world. The East Coast, meanwhile, accounted for flows of gasoline components, diesel and other distillate fuel oils, as well as some unfinished oils.

Padd 5 only imported residual fuel oil (RFO) from Russia by November of last year, government data show.

Offsets

While the headline figures for Russian exports to the US might not be dramatic, the overall oil market is tight and any disruption could send prices higher.

The Biden administration could address such a development in several ways, according to analysts with Jeffries, including releasing more crude from strategic reserves — possibly in coordination with other countries — and pressuring Opec to bump up output.

However, other options exist within the market.

“US refiners can re-jigger their crude slates to back out Russian crude,” said Auers.

For example, West Coast refiners could once again turn to Midcontinent Bakken crude to be blended with heavier Canadian feedstock to make up for the loss of Russian barrels, according to Auers.

However, given the location of refineries that source Russian crude, refiners may need to turn to international suppliers. That’s because the recent buildout in pipeline capacity has not involved boosting connectivity between producing fields and the East and West Coasts. Sourcing more domestic crude there would involve rail and other alternative midstream assets, and thus wider discounts for Bakken and other grades to offset the more expensive cost of shipping.

“The bottom line is that Padds 1 and 5 are short crude, and they [make that up] from imports,” Lipow said.

The global crude market is tight, in no small part because of concerns over the situation in Eastern Europe and potential sanctions, but also from a fundamental perspective.

However, Lipow said, should Europe and the US stop buying crude from Russia, the latter is more likely to sell barrels to China.

“If Russia sells more to China, that is more of a musical chairs scenario,” he explained. “China would buy less from other suppliers and those suppliers would then [sell to] US refiners.”

Topics:
Crude Oil, Oil Trade, Refining, Sanctions, Ukraine Crisis
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