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Russia's Oil Exports Keep Falling

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Energy Intelligence now estimates that Russia’s combined exports of crude oil and refined products have fallen by about 3 million barrels per day and could shrink by another 2 million b/d over the next week or so.

A decline of 5 million b/d would leave the country’s total seaborne exports at about 2.3 million b/d to 2.5 million b/d — about a third of their level before Russia invaded Ukraine.

The conservative upward revision of 500,000 b/d from our previous estimate of 2.5 million b/d includes a drop of 1.6 million b/d in crude exports, from about 4.7 million b/d before financial sanctions were slapped on Russia.

Exports of refined products are down by more than 1.3 million b/d, according to our updated estimate, compared with a total of around 2.8 million b/d before the recent disruptions.

Deliveries via the Druzhba pipeline to landlocked refineries in Central and Eastern Europe are reported to be steady for now, at slightly less than 1 million b/d.

Baltic Exports Dry Up

Anecdotal evidence suggests that crude exports from Primorsk and Ust-Luga in the Baltic and Novorossiysk in the Black Sea may experience severe disruptions after Mar. 15.

“It looks like much of the Western Hemisphere Russian export program — other than down the pipelines — is still up in the air,” said Mike Muller, head of Vitol Trading in Asia.

The current absence of a seaborne export schedule has thrown the physical market into disarray. Exports of Urals crude from Northwest Europe and the Mediterranean normally average around 1.7 million b/d each month.

All crude tanker fixtures from Russia after Mar. 15 are for shipments of Kazakh CPC Blend crude. As of Monday, there were no vessels chartered from Primorsk and just four tankers chartered from Ust-Luga in the Baltic.

China Still Buying

An additional 700,000-750,000 b/d of Russia’s East Siberia-Pacific Ocean (Espo) crude blend usually goes to Asia.

Port data show that those volumes are still being lifted by Chinese buyers and that crude cargoes are still moving in and out of the Russian port of Kozmino in the Far East.

China issued a statement last week, saying it would not slap sanctions on Russian oil and would continue to import it. Russia’s Espo crude goes almost entirely to Chinese refiners.

“The consensus view now is that they [China] might have to be the backstop home for a lot of the Baltic Urals and even to a certain extent the Black Sea Urals that is loading and will have to find its way East if the West rejects it wholesale,” Muller said.

Asian market sources had previously told Energy Intelligence that Chinese buyers were holding back on purchases of Russian crude — at least temporarily.

With reduced flows to Europe, more Urals volumes are expected to make their way to the East of Suez market, too.

The Brent-Dubai EFS spread, which dictates flows of cargoes from the Atlantic Basin to the East, broke to a record high of $17.30/bbl on Mar. 3, and is still north of $14/bbl.

That would require even larger price discounts for Urals to defeat the adverse arbitrage conditions and appeal to willing Asian buyers.

Long-Term Contracts

A few European refiners are still taking delivery of Russian oil cargoes, however.

Shell’s purchase of a Urals cargo on Friday created a commotion, even though it was done in the S&P Global (formerly Platts) market-on-close trading window, which makes it visible.

Over the weekend, Neste’s Porvoo refinery in Finland and Repsol’s Cartagena refinery in Spain also took delivery of one cargo each of Urals, according to shipping data.

Some of those deliveries may have occurred under long-term contracts with Russian suppliers, which are still being fulfilled.

“Most of the long-term contracts are being executed. I have not heard about disruptions and rejections from buyers for filling their long-term obligations. […] Nobody goes against the legal obligations,” a source at a Russian oil company told Energy Intelligence.

“But obviously for the spot cargoes, it gets more difficult because people are negotiating extreme discounts,” he added.

Scramble for Alternatives

The current tight market means that more countries will be competing for alternatives to Russian crude, and those barrels will end up in the hands of the highest bidder.

There is already stronger uptake and nominations for higher volumes of alternative sour crudes supplied by Saudi Arabia and other Mideast producers. That has translated into higher prices for their term customers.

Saudi Aramco’s official selling prices for Asia-bound cargoes loaded in April have soared, with steep increases also seen for barrels sent to Europe and the US too.

“They're going to have this challenge every month now. The market is going to be asking them for more than they can give or than they're prepared to give,” Muller said.

Topics:
Oil Supply, Oil Spot Markets, Oil Prices, Sanctions, Military Conflict, Ukraine Crisis
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