Global oil prices soared well above $100 per barrel as supply concerns emanating from the conflict in Ukraine gathered pace *.
Rystad Energy’s senior oil market analyst, Louise Dickson, said Russia’s flagship Urals blend was one of the first to break through the $100 per barrel mark this year, but the country’s attack on Ukraine had made it one of the most toxic barrels on the market.
The medium sour blend, which hit multi-year premiums versus Brent earlier this year, was now trading at more than a $10 per barrel discount to the North Sea benchmark.
“Proposed sanctions that would either blacklist Russian oil supplies or blacklist the financial tools to purchase Russian crude are already hitting Urals crude pricing formation as European refineries attempt to reshuffle Urals purchases for other comparable medium sour grades, especially those hailing from the Middle East and OPEC core members Saudi Arabia and Iraq,” Dickson said.
She said if Europe rejected the discounted Urals, other refineries, in particular those in Asia, would have the opportunity to snap up barrels and capitalise on the strong discount.
The flagship Urals blend is primarily loaded and shipped out of the ports of Novorossiysk on the Black Sea, Ust-Luga on the Gulf of finland, Primorsk on the Baltic Sea, and is primarily unloaded in European countries.
While a transport halt due to war in Ukraine would normally boost the premium on this blend, the threat of sanctions rendering purchases of Russian crude impossible, actually end up discounting the barrels,” she said.
Dickson added that the severe discount on the medium sour grade could influence OPEC+’s decision on Wednesday to bring more analogous barrels, such as Arab Light, Arab Heavy and Basrah Light, to the market.
“As Omicron recovery extends, refineries capitalising on high middle distillate cracks see increased competition for medium sour grades,” she said.
Of the total 22 million global medium sour barrels in production globally, Saudi Arabia accounts for 8.6 million barrels per day (bpd), Iraq 3 million bpd, Russia 2.7 million bpd, Kuwait 2.1 million bpd, Iran 1.7 million bpd, and the UAE about 800 000 bpd, as well as 1.2 million bpd from the US, predominantly from the Deepwater US Gulf of Mexico fields.
“The proposed manoeuvre by the US and allies to release strategic petroleum reserves (SPR) is reported to include sweet grades, which would likely have a more direct impact on gasoline prices in North America than the last release, which was primarily nominated in sour crude volumes from the US side.”
A sizeable SPR announcement from the US and other importing countries on Tuesday would likely not impact the decision for OPEC+ to increase its quota ceiling by 400 000 bpd for April 2022.
However, Dickson said the pledge from OPEC+ to increase supply was so far “a paper promise”.
“Our supply database indicates that the participating OPEC+ deal members are in fact producing about 800 000 bpd below stated target levels, adding to the shortness in the supply market and further stoking the bullish price environment.”
* An oil price update at about 11am (SAST) this morning showed Brent to be trending at $113 per barrel.
