Column: EU ban on Russian crude fuels disruption to global flows: Russell

The industrial facilities of PCK Oil Raffinerie are located in Schwedt/Oder. The company received crude oil from Russia on May 9, 2022 via the German “Friendship” pipeline. REUTERS/Hannibal Hanschke

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LAUNCESTON, Australia, May 31 (Reuters) – The European Union’s decision to cut 90 percent of its oil imports from Russia will accelerate what is already underway as Moscow tries to sell as much crude as possible to Asian buyers.

Russia may find China and India particularly willing, as the former reopens much of its economy from a strict zero-COVID-19 lockdown, while the latter seeks to lower its sky-high energy import bill.

European Council President Charles Michel tweeted at the end of a two-day summit of EU-27 leaders that the bloc agreed to stop crude oil imports from Russia.read more

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“This immediately covers more than two-thirds of Russia’s oil imports, cutting a huge source of funding for its war machine. Russia is under the greatest pressure to end the war,” he said.

A third of the EU’s remaining oil imports from Russia come from the Druzhba pipeline, but Poland and Germany aim to stop buying by the end of the year, meaning the EU will stop buying 90% of all crude from Russia.

News of the ban kept Brent futures well bought, with the more active August contract briefly rising as high as $118.80 a barrel in early trade, from Monday’s close of $117.60.

Benchmark front-month futures have risen about 26% since hitting $96.93 a barrel on March 16, their lowest price since Russia’s invasion of neighboring Ukraine on February 24, an action that has sparked criticism of Ukraine from Europe and other Western nations. a series of sanctions. Moscow.

Russia’s crude exports have so far been little changed from before the Ukraine attack, with commodities consultant Kpler estimating May’s exports will be the highest since October 2019.

Russian exports in May are expected to be 5.09 million bpd, compared with 5.1 million bpd in October 2019.

The shift in buyers is already evident, with exports to China at 1.04 million bpd, up from 937,000 bpd in April, while exports to India are forecast at 853,000 bpd, down from April’s record 1.09 million bpd, but well above pre-invasion levels of only around 57,000 bpd in January.

Kpler estimates seaborne exports to Europe at 2.23 million bpd, down from 2.42 million bpd in April and the lowest monthly total since July 2020, at the height of the COVID-19 lockdown .

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The question for the crude market is how successful Russia is at finding new buyers to replace European customers, and even if it can find willing buyers, will it be able to ship crude from European ports to Asia on longer sea voyages.

Russia could supply India with as much as 900,000 bpd if the government tapped all of its Sovkomflot tanker fleet, but Asia’s second-biggest oil importer said in a May 25 report, commodity analysts at JPMorgan Chase & Co. It’s actually more likely around 500,000 b/d.

Analysts say India could add another 500,000 bpd through the Suez Canal if its own tanker fleet is fully mobilized to transport Russian crude.

JPMorgan said China COSCO Group may import 1.8 million barrels a day of Russian crude on the St. Petersburg-Shanghai route.

However, these assumptions are based on India, China and Russia using almost all tanker capacity, which is unlikely to happen in reality.

More likely, China and India did increase their imports from Russia, but not enough to offset the loss of European imports.

Another question is how Europe can displace Russian crude, as refiners will want to process oil of similar quality to the Urals, the main grade currently supplied to Europe.

This limits suitable crude oil inventories, which will be further constrained if purchases are made on a spot basis.

Some grades from Angola and Nigeria, as well as some grades from the Middle East, have similar qualities to Urals, with an API gravity of 30.6 and a sulphur percentage of 1.48, making them medium acid oils.

The EU decision could further dislocate global crude oil flows, which could further drive up freight and other costs and raise security of supply concerns.

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Edited by Himani Sarkar

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