The Russian oil Urals has pockets of European refineries, in the absence of alternatives
Quotations of the basic Russian export grade Urals oil in recent weeks has increased markedly to North sea benchmark Brent, what did the Urals too expensive for many European refineries, forcing them to reduce purchases or to seek a replacement for the Russian blend, traders said, and the estimates of Reuters.
European refiners – major multi-year buyers of Urals – not the first time faced with the high cost of the Russian varieties, but this time they did not have the fortitude to wait it out, and consumers began to reconfigure the equipment to lighter varieties.
Urals rose by more than $6 per barrel since April, and steadily traded at a premium to North sea benchmark because of deficits caused by reduced production and export from Russia under the Pact OPEC+.
“Refiners do not buy Urals at current prices, whereas lighter varieties feel better, which explains the situation. From (us oil) WTI fared well, much of it is coming to Europe,” said a trader in the oil market.
“Oil (from Norway) Johan Sverdrup c delivery in July is completely sold out, and she’s a good replacement Urals”, – he added.
Another source told Reuters working for a global trading company, reported that oil refineries in Europe already Urals substitute other varieties, increasing the processing of lighter raw materials from West Africa and the United States.
He noted that these brands have longer delivery times, which requires significant changes in the logistics system, whereas one of the advantages of Urals – an opportunity to purchase a raw material that will fed to the plant for several weeks.
In recent months, processing Urals to “complex” refineries in southern Europe brings to processors the losses, the size of which averages over $3 per barrel in the last two weeks.
Russian Urals crude in the Mediterranean is estimated at a premium even to light Caspian Azeri BTC blend, which has never happened until April 2020.
Shortage of varieties in July, will worsen even more: draft positional schedule for the next month showed that exports of Urals in the Baltic will collapse by 45% in daily terms by June to the lowest since 2003 level.
URALS – A HEAVY BURDEN
In terms of cost Urals buyers often make choices in favor of other varieties available in the market and providing more attractive Economics of the refinery.
“Factories basket varieties are already changing,” said one of the traders.
The interlocutors Reuters noted that for a number of plants that traditionally buy Urals, a solution is to reduce processing volumes.
“The choice of sulfur grades is now in principle limited, and they (buyers) are forced to take Urals,” – says another source.
“People would rather cut processing (than move on to other varieties). The Greeks and the Spaniards have long to think about switching to lighter basket varieties. (Hellenic refineries Hellenic Petroleum) Aspropyrgos took significantly more dark than it is now. (Spanish refinery) Bilbao – buys significantly less than the dark varieties, including for Venezuela,” – said a trader in the market of the Mediterranean.
Processors around the world refuse to buy Venezuelan oil, fearing U.S. sanctions.
According to traders, the French company Total (PA:TOTF), a major buyer of Russian varieties, have refused delivery of two batches of Urals from the program of July at their plants and offering goods on the market, as the price variety will not provide acceptable Economics.
THERE IS NO NEED TO?
The reduction of the marine export Urlas in June and July led to the fact that the big players such as Glencore (LON:GLEN) and Trafigura will receive from the Russian manufacturers less oil than provided by long-term contracts, but this has not caused conflicts between sellers and buyers.
“No one will do this due to the fact that nedopostavili Urals – at such a (high price), it is not particularly necessary,” says another trader.
“Urals can be anything expensive, but it is not. We would be willing to take more and yourself (for processing), and trading,” said another buyer of sorts.
Source: Reuters (With the participation of Ahmad Haddara in London, editor Alexander Ershov)