Millions of barrels of Russian oil are still making their way to oil buyers, more than a month after the country launched a “special operation” in Ukraine. That, along with many other factors, significantly eased concerns that the backlash from sanctions would reduce supply and cause the oil market to actually overheat.
Indian refiners bought lots of Russian Urals crude in March 2022, which could replace the Middle Eastern grades they normally buy from Abu Dhabi and Iraq. Meanwhile, China’s private processors are said to be still targeting their favorite oil in eastern Russia – likely because of low prices.
Since the Russian-Ukrainian conflict broke out at the end of February 2022, the market has always revolved around two important questions: How much crude oil will Moscow sell, and to whom? Buyers across Europe have stopped buying in response to the Russia-Ukraine conflict, but it’s unclear how much other regions, especially Asia, the heart of world oil import demand, will buy.
“Russian oil looks very attractive,” said John Driscoll, chief strategist at JTD Energy Services Pte., adding that his view was that measures against the country would lead to restraint. their crude oil purchases. However, “Resourceful traders can find ways to ship oil from Russia – China will not be threatened by US sanctions and will remain the largest importer of Russian crude oil. India. India will be the next country.”
For now, at least, what is happening with Russian oil buying and selling suggests that traders are less concerned about the risk of a supply shortage.
Legal trade
Currently, there are no sanctions that directly prohibit buying, but there is concern about what will happen if the war drags on. Russia’s financing, insurance, and transportation of petroleum have also become much more complicated due to sanctions imposed by the West.
European officials are debating the idea of an embargo on Russian oil sales, although the bloc remains divided on the issue, and Germany opposes such a move.
For now, however, traders seem to be thinking that the outflow of Russian oil suggests the market will not be as tight as initially feared.
According to traders, a flurry of offers to sell Middle Eastern oil has taken place in the Asian spot market recently. Crucially, that was accompanied by a drop in Chinese demand amid the COVID-19 lockdown that led to the lockdown, and the fluctuating oil prices kept many buyers from paying much attention to the latest developments. that offer.
Middle East Oil
The spread in the selling price of Middle Eastern oil, a key indicator of demand for the region’s oil, has softened after a sharp rise in early March. Abu Dhabi’s Upper Zakum crude for May delivery was bought by PTT of Thailand at a price of about 7.50 USD/barrel higher than the reference price of Dubai oil in the past week, lower than the level of 10 USD in the previous two weeks.
Crude oil from the Persian Gulf is believed to be the natural choice of Asian buyers in the absence of Russian oil.
Immediately after Russia’s military action in Ukraine, more and more buyers became wary of Russian oil despite a record drop in Russian oil prices after the United States banned Russian oil imports and came under heavy criticism from Shell. by buying Ural oil. Shell, along with TotalEnergies and BP, are among European oil buyers that have backed down on these deals.
Flow from the Far East
In the current situation of trading and transportation with many problems, the International Energy Agency (IEA) said that it is still too early to assess the actual volume of Russian crude oil that will “flow” to Asia in the near future. the coming months. The IEA said last week that the country’s oil production is forecast to fall by about a quarter in April, causing the biggest supply shock in decades.
Still, there is some oil going to Asia, at least for now.
Ships of Sokol crude for May delivery – another oil from the Russian Far East – are being prepared for a number of customers in Northeast Asia, who have signed long-term contracts and according to the terms of the contract. shareholder agreement, information from traders buying and selling this oil said.
ESPO May oil futures from eastern Russia are being discounted at the Dubai exchange, where the oil is traded, at much cheaper prices than Middle Eastern oil. Traders said independent Chinese refiners were seen as the most likely customers in these deals, although no deals had been recorded in March amid market transparency. school is reduced.
Russia’s oil flow does not appear to be as severely congested as initially feared.
China’s demand
The reason for the slow buying activities is because the demand of Chinese refineries is currently very low, in which independent plants are operating at minimum capacity due to the Covid-19 epidemic. outbreak leading to lockdown/social distancing orders.
In China, private plants account for a quarter of the country’s oil processing capacity. According to oil industry consulting firm – OilChem, private plants are operating at the lowest capacity of 5 years. At least two of these companies even resold crude oil purchased from West Africa and Latin America in early March, a very rare move.
West Africa, European markets
Chinese traders said the drop in oil demand from Chinese customers also hampered West African oil purchases, causing the Angolan crude offer price to drop quite a bit. A small amount of Angolan oil, due for delivery in April, is still unsold, they said.
Meanwhile, in Europe, traders say the impact of the lack of Ural barrels is not so profound and does not make the market as scarce as previously feared, because most mills Oil refineries in Europe have secured their necessary supplies until the middle of next month.
References: Bloomberg, Japantimes
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