MOSCOW (MRC) -- Russian oil exports to Europe are set to hit their lowest levels in two decades in July, with an output cut deal prompting other suppliers to fill the gap left by Moscow, reported Reuters with reference to data from traders and Refinitiv Eikon.
Russia is set to slash seaborne Urals supplies to Europe to 3.8 million tonnes (900,000 barrels per day) next month, its lowest since 1999, when President Vladimir Putin first came to power as prime minister.
“This is a shock for everyone ... Even the American oil is currently more profitable to refine ... Requests for oil supplies from the United States have increased,” a trading source said.
Light oil flows from the United States to Europe were close to 3 million tonnes in both May and June, just 1 million tonnes lower than a record high in March, Refinitiv Eikon data shows.
Supplies from the United States to Europe remain ample despite oil production decrease in the US by 2.1 million bpd from March, as oil prices have plummeted due to overproduction and the fallout from the coronavirus crisis.
Through May to July, Russia produced 2 million bpd less due to the global oil output cut deal, which Washington is not part of. With less Urals available, its prices have spiked, hurting the demand further.
Urals have traded at a hefty premium of more than USD2 per barrel to dated Brent, global benchmark, since April, up from a discount of around $4 per barrel.
Russian crude sales have also been hit by recovering oil production in Europe, where output had been stagnant for decades until Norway launched the huge Johan Sverdrup oilfield last year.
The new grade, JS Blend, has lower sulphur content than Urals, making it more attractive to some refineries. Norway is not part of the global cuts either and production at Johan Sverdrup is seen rising to 440,000 bpd this summer.
“There is a high risk of not finding a (Urals) cargo at all, so we are looking for alternatives from the start,” a trader at a European refinery said.
As MRC wrote before, Russian offline primary oil refining capacity was seen declining in June to 1.583 million tons from an upwardly revised plan of 4.168 million tons expected in May, reported Reuters in late June with reference to energy ministry data, as seasonal maintenance comes off its peak.
We also 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.
And 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 DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC