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Urals u-turn as Europe shuns expensive Russian oil

June 29/2020

MOSCOW (MRC) -- The rapidly rising price of Russias flagship Urals blend oil has forced European refineries to cut purchases from Moscow and look for crude supplies elsewhere, reported Reuters with reference to traders.

Urals, a blend of heavy sour oil from the Urals mountains and Volga river region and light oil from Western Siberian fields, has traded at a hefty premium of more than USD2 per barrel to dated Brent a global benchmark since April, up from a discount of around $4 per barrel.

Prices are being pushed up as a global deal to cut oil output reduces the amount of Urals for export, with loadings from Russias Baltic ports set to fall to 2.5 million tonnes in July from the 4.4 million tonnes planned for June.

Complex refineries in southern Europe have sustained loses from using Urals in the past few months, with the shortfall topping USD3 per barrel in the last two weeks

While the Russian blend remains popular in China due to a lack of sour barrels from Saudi Arabia and other destinations, Europe has a range of alternatives, including oil from the United States and Norway, although not in great enough volumes to totally replace Urals.

The oil refineries are not buying Urals at current prices, while light blends are feeling great... There is plenty of WTI in Europe, a trader said, referring to US West Texas Intermediate crude.

Johan Sverdrup oil for delivery in July has sold out, he added, noting oil from the Norwegian field was a good substitute for Russian barrels amid a scarcity of available alternatives.

Another source at a global trading firm said that the European refineries were already using more light oil from West Africa and the United States instead of Urals.

As MRC wrote before, Russia may further cut overseas supplies of its Urals oil next month due to rising demand from domestic refineries as coronavirus-related restrictions ease.

We remind that global oil consumption cut by up to a third in Q1 2020. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We also remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim.  At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
Author:Margaret Volkova
Tags:Europe, PP, PE, LLDPE, crude and gaz condensate, PP random copolymer, propylene, LDPE, ethylene, petrochemistry, BASF, Borealis, BP Plc, LyondellBasell, Sabic, Total Petrochemicals, Rossiya.
Category:General News
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