Crude benchmarks continue to rise on Ukraine-Russia tensions

Crude price benchmarks climbed Feb. 16, with Dated Brent rising above $100/b, supported by continued tensions along the Ukrainian border.

S&P Global Platts assessed its Dated Brent benchmark at $100.795/b, up $3.14 on the day, and the highest since Sept. 4, 2014. American GulfCoast Select (AGS) was assessed at $94.85/b, up $1.37.

Despite Moscow's claims it was withdrawing troops from the border, Western nations have continued to point out that the threat of conflict has yet to diminish, with NATO secretary-general Jens Stoltenberg warning Feb. 16 that Russia continues to increase troop numbers on the border.

Crude futures fell following the assessments, after Iran's top negotiator Ali Bagheri Kani said via Twitter that the US and Iran were nearing an agreement in ongoing nuclear talks.

At 2200 GMT, ICE Brent was trading at $91.79/b, down $1.49, while NYMEX WTI was trading at $90.62/b, down $1.45.

The Russian Defense Ministry said Feb. 15 that it was pulling back some of its troops from the Ukrainian border after the completion of some planned military exercises.

However, US President Joe Biden later said the troop movements were not verified.

"An invasion remains distinctly possible," Biden said during a press conference.

"Russian president Vladimir Putin's stated plans to 'partially' reduce troops near Ukraine Feb. 15, but uncertainty will persist as long as his intentions remain strategically ambiguous," Paul Sheldon, chief geopolitical adviser at Platts Analytics, said. "In any case, we still do not expect a notable curtailment of oil exports, either from US sanctions or Russia voluntarily holding back volumes."

Trade

-- Russian gas transport through Ukraine has been on the decline in recent years and collapsed at the start of 2022.

• Ukraine remains a key transit route for Russian gas to Europe, accounting for a little under 10% of Europe's gas demand in 2021.
• Under a five-year transit deal between Gazprom and Ukraine's Naftogaz in 2019, the Russian company agreed to send a minimum of 110 million cu m/d of gas via Ukraine to Europe under ship-or-pay terms in 2022.
• Gas deliveries via Ukraine at the key Velke Kapusany entry point fell sharply in January but recovered somewhat in February. Flows of 34 million cu m/d were seen Feb. 14 compared with January lows of 25 million cu m/d.
• Gas flows through the Nord Stream 1 pipeline have trended below capacity since Feb. 10, last seen near 1.7 TWh/d Feb. 14.

-- Ukraine is a critical route for oil flows into Eastern Europe and the fringes of the EU.

• Ukraine moves Russian oil to Slovakia, Hungary and the Czech Republic. The country's transit of Russian crude for export to the EU was 11.9 million mt in 2021, down from 12.3 million mt in 2020, while oil transit to Belarus remained unchanged at about 800,000 mt.
• Last year, crude shipments via the southern branch of the Druzhba pipeline network included 5.2 million mt, or around 104,427 b/d, to Slovakia; 3.4 million mt, or around 68,279 b/d, to Hungary; and 3.4 million mt, or around 68,279 b/d, to the Czech Republic.

-- Ukraine is one of the world's largest exporters of grains, with any disruption to supplies potentially impacting food security and prices.

• Ukraine accounts for around 13% of global corn exports, the fourth largest exporter in the world and Europe's largest by some way. Half of its exports go to the EU, with China being another major importer. The corn is used in animal feed, while the biofuel sector also takes a significant share. It is forecast to export 33.5 million mt for marketing year 2021-22 to June 30.
• The country accounts for around a tenth of global wheat exports, which have risen 27% so far in marketing year 2021-22 (July to end-June) to 16.1 million mt, as neighboring Russia increased its export taxes.
• Platts Analytics projected Ukraine will export 22.5 million mt of wheat in marketing year 2021-22.

-- Ukraine is also the world's 13th-largest producer of steel and the fifth-largest exporter of iron ore by volume.

• Ukraine produced 21.4 million mt of crude steel in 2021, with 80% of its steel output exported.
• It exported 44.4 million mt of iron ore products in 2021 and imported 9.85 million mt of metallurgical coal and coke products. Ukraine raised 3.9 million mt of steel scrap, of which 616,000 mt was exported.

Prices

-- Oil prices first hit seven-year highs mid-January, spurred by a recovery in mobility levels, worries over spare capacity among key producing nations, slow progress in getting Iran's sanctions lifted and tensions over Ukraine.

• Prices for Russia's Urals crude, which ships via Ukraine, have increased since mid-December in line with global oil prices. Platts assessed Urals crude at $93.225/b Feb. 16, up $2.55 on the day.

-- European gas prices have risen since mid-January as an attack by Russia against Ukraine could impact gas supplies.

• The benchmark European gas contract TTF day-ahead surged to a record Eur182.77/MWh Dec. 21 before falling to Eur61.28/MWh at the end of the year. By market close Feb. 16, the contract was at Eur68.075/MWh, Platts data showed.
• Any conflict impacting gas supplies into Europe could have knock-on impacts on power, carbon and coal prices. CIF ARA spot coal prices have risen 31% since the start of the year to be assessed by Platts at $177/mt Feb. 14. Over the year, the material has risen 173% in value.
• Prices in the EU Emissions Trading System hit a record Eur97.50/mtCO2e (December 2022 delivery) on the ICE Endex exchange Feb. 4, in part due to continued uncertainty over European gas stocks. The price had fallen to Eur92.87/mt by market close Feb. 14.

-- Ukrainian corn prices have been rising on the back of strong global demand and Russian plans to impose export duties on grains.

• Ukraine FOB Black Sea corn export prices hit a seven-year high of $301/mt in May 2021. Prices then dipped to $254/mt in September but have risen steadily since to be assessed at $284/mt as of Feb. 16.

Infrastructure

-- Russia could close off Ukrainian ports due to its control of Crimea and Black Sea chokepoints.

• The Kerch Strait connects the Black Sea and the Sea of Azov and is used both ways, to supply soft commodities, and ship steel/pig iron and other raw materials from Mariupol.
• Russia's Azov and Rostov ports serve as both transshipment ports to load deep water vessels at the Russian port of Kavkaz and as loading points to make small parcel shipments of wheat, barley and corn to destinations in the east Mediterranean.
• Exports of both corn and wheat take place through a number of Ukrainian sea ports, including the southwestern Panamax-capable ports of Odessa, Pivdennyi and Chornomorsk, all of which are well away from the front line. However, they are all within easy reach of Crimea, which is currently under Russian occupation.

-- The security of the Druzhba pipeline and ports are key for markets.

• Ukraine ships Russian oil to Slovakia, Hungary and the Czech Republic via the southern leg of the key 25 million mt/year Druzhba pipeline.
• Mariupol, Ukraine's main port in the Sea of Azov, is vital for pig iron and steel export from Ukraine and imports of steelmaking raw materials, particularly coking coal. In recent years, steel shipments from Mariupol have represented about a quarter of Ukraine's total exports in value terms.
• Any limitation of vessels through the Kerch Strait would likely affect supply routes used by Ukrainian mining and steel group Metinvest and other bulk shipping on the route.

-- A cloud now hangs over the future of the Nord Stream 2 pipeline linking Russia with Germany.

• The future of the now complete Nord Stream 2 gas link could rest on affairs in Ukraine.
• EC President Ursula von der Leyen said Feb. 4 that Nord Stream 2 could not be "removed from the table" as far as sanctions were concerned and that Brussels had prepared a "robust and comprehensive" package of sanctions that it could impose on Moscow if Russia invaded Ukraine.
• US President Joe Biden said Feb. 15 that Nord Stream 2 "will not happen" if Russia invaded Ukraine.
• Platts Analytics has pushed its base case scenario for Nord Stream 2's startup to October 2022.