CPC Blend hits near two-year low amid Russia-Ukraine conflict

Kazakhstani grade CPC Blend hit its lowest level since April 2020 following Russia's invasion of Ukraine late-February, leaving European buyers concerned about the trade implications of sanctions on Russian banks as shipowners resist Black Sea voyage amid surging freight rates.

"We are speaking about millions and millions of dollars lost" said a CPC trader, suggesting that sellers have been unable to clear CPC Blend cargoes in an unprecedented market.

CPC Blend originates from Kazakhstani oil fields, but the naphtha rich grade loads from the Russian port of Novorossisk, prompting some buyers to shun the grade because of its association with Russia.

"Vessel owners and western firms most certainly care which load port they're going to," said a second CPC Blend trader.

Glencore offered one CFR cargo loading March 22- 26 at Dated Brent minus $5.70/b in the Platts Market on Close assessment process from S&P Global Commodity Insights March 1. Traders have said that offers for CPC Blend were at Dated Brent minus $6/b for CIF Augusta cargoes.

CPC Blend was last assessed down $1.135/b on the day at Dated Brent minus $5.835/b on a CIF Augusta basis, March 1. The Kazakhstani grade was assessed at Dated Brent minus $7.50/b April 28, 2020.

Traders are increasingly concerned that international sanctions could affect the loading of cargoes at the Black Sea ports. There are no restrictions on CPC Blend, or any other crude, loading from Novorossisk, Russia, so far.

"CPC is looking weak because it loads from Russia," a third trader said. "People are panicking." Sellers are anxious and attempting to clear their cargoes, according to the trader. There were at least eight CPC cargoes still to be cleared for the March program and that was adding significant pressure on the grade's differentials.

Some analysts are expecting a rise in CPC Blend differentials due to a decline in Russian Urals, with Mediterranean refiners seeking to replace the Russian medium sour grade with the naphtha rich Kazakhstani grade.

"I believe CPC Blend should be appreciated given the costs of the alternatives" said a fourth trader, referring to some expensive distillate rich grades in the region, such as the Azeri Light, or even lighter sweeter grades in the North Sea commanding even larger premiums. However, concerns about international sanctions had an opposite effect on CPC Blend differentials.

Letters of credit were difficult to secure for CPC Blend, according to trading sources.

"[Lack of credit] also affects deals for companies and grades not linked to Russia, banks are severely restricting risk at present," said a fifth trader, referring to CPC Blend.

Freight rates surge

Skyrocketing freight rates have pressured CPC Blend differentials. Freight costs were severely hurting seller's ability to clear CPC Blend cargoes. Some ship owners had refused to offer their vessels for voyages in the Black Sea, due to the ongoing Russia-Ukraine conflict, according to shipping sources.

Sellers said that trading on an FOB (Free on Board) basis had been hampered by the added cost of 'additional war premium risk' insurance. The additional insurance was a huge cost for buyers, forcing sellers to offload cargoes at even lower levels.

A Black Sea to Mediterranean vessel was fixed at w480, which is dramatically high, according to shipping sources.