Factbox: Global oil benchmarks rally above $100/b as markets shun Russian barrels

Global crude benchmarks soared past the $100/b threshold March 1, while price discounts deepened for Russian oil, as traders sought alternative supplies amid Russia's military invasion of Ukraine.

The Platts Dated Brent benchmark jumped $9.72 to be assessed at $112.92/b, while American GulfCoast Select climbed $6.96 to be assessed at $104.71/b, according to data from S&P Global Commodity Insights.

However, the discount for Russian Urals crude continued to widen, with Rotterdam Urals assessed at an $18.31/b discount to Dated Brent.

"Oil price differentials are reflecting a clear unwillingness to take Russian crude, and there continues to be [a] risk of more sanctions that could indirectly or directly impact oil purchases or supplies," said S&P Global Commodity Insights' Shin Kim, head of oil supply and production analysis.

In the case of a major loss of Russian supply, the combination of US and IEA strategic reserve releases and higher Saudi Arabian and UAE crude production could at most make up for 2 million-3 million b/d over the next couple of months, Kim said. That number quickly falls to just 1 million-1.5 million b/d in the third month, although the assumed full return of the Iran nuclear deal could add another 1 million b/d of supply by August.

However, this does not nearly make up for total Russian oil exports of around 7 million b/d, of which 4.5 million b/d is crude.

Prices

-- Oil prices first hit seven-year highs in mid-January, but the Ukraine crisis has added to risk premiums.

• The Platts Dated Brent benchmark jumped $9.72 to be assessed at $112.92/b, while American GulfCoast Select climbed $6.96 to be assessed at $104.71/b.
• Russian Urals crude price discounts have widened as some refiners have turned to other supplies. Urals CIF Rotterdam was assessed at Dated Brent minus $18.31/b March 1, widening $6.81 on the day, and widening from a 60 cent/b discount on Jan. 25.
• Distillate prices have soared on concerns that Russian gasoil flows would be impacted by sanctions at a time of low inventories. NYMEX March ULSD rallied 21.98 cents to settle at $3.1511/gal March 1.
• Benchmark Platts Dubai premium to front-month Dubai futures surged to an all-time high of $7.27/b for May-loading cargoes, while May DME Oman closed at $9.46/b over May Dubai futures, the highest since Sept. 26, 2018.
• Prices of oil products on the Russian domestic market tumbled this week following a hike of the borrowing interest rate and amid general uncertainty after Russia's invasion of Ukraine. Gasoline has shed close to Rb5,000/mt ($53.5/mt) on the St. Petersburg exchange since the start of the week, after the central bank hiked the basic interest rate, which led to the subsequent increase of the rate on crediting.
• Russia's Lukoil booked an Aframax at a Worldscale 25 premium to typical stems for purposes of lifting a US crude cargo for export to Europe as shipowners weighed the risks of sanctions related to potential payment issues amid further escalation of the Russia-Ukraine conflict. Lukoil placed the ExxonMobil-operated 109,995 dwt Navig8 Prestige on subjects in late trading Feb. 28 for a USGC-UK Continent/Mediterranean run at w185, set to load March 11-12.

Trade

-- Countries begin push to ban Russian loadings

• Russian-owned oil tankers have been banned from docking in the UK as part of a widespread moratorium on the country's shipping in response to the invasion of Ukraine.
• In 2020, Russia was the third-largest source of crude oil imports to the UK, amounting to 3.9 million mt, or around 11% of imported crude, according to government data. Russia was the second-largest source of imported petroleum products, amounting to 4.0 million mt, or 16% of the total, the data showed.
• Senator Ed Markey, Democrat-Massachusetts, introduced a bill March 1 to prohibit all imports of Russian crude and refined products into the US, subject to a presidential national security waiver.
• US Senator Joe Manchin, Democrat-West Virginia, urged President Joe Biden to impose a ban on Russian oil imports and work to increase domestic production in the name of increasing US energy security.
• Canada announced late Feb. 28 a ban on the import of Russian oil, making it the first G7 nation to impose an embargo. Canada imported almost 18,000 barrels of petroleum products from Russia in 2019, making it the country's third-largest foreign supplier after the US and Saudi Arabia, according to the Canadian Association of Petroleum Producers.
• China and Russia will continue to conduct normal trade cooperation, Beijing's foreign ministry spokesperson Wang Wenbin said in a press conference Feb. 28. Russia is also the second-largest crude supplier to China, delivering 1.6 million b/d of crude in 2021, data from China's General Administration of Customs showed.

-- Oil traders increasingly uneasy about Russian-origin products

• Some market participants are looking away from Russia as a source of supply in over-the-counter transactions, with preference for non Russian-origin product being written into deal terms and conditions, while others have said they are still able to trade Russian barrels.
• Some entities need to confirm whether they will or will not accept Russian product on a case-by-case basis, while some have already gone as far as to stop accepting Russian products.
• Some banks were not guaranteeing that payment could be processed for Russian-origin cargoes, after some Russian banks were excluded from the Swift payment system.
• Some entities were facing difficulty accessing Letters of Credit -- bank-issued documents guaranteeing that counterparties to a transaction will be paid even in the event that a buyer is unable to make payment on a purchase.

-- Oil refiners weighing up their crude buying options.

• Russia accounts for about 10% of total global crude oil supply and Urals crude is a staple for refiners in Northwest Europe and the Mediterranean. Key buyers include Germany, Italy, the Netherlands, Poland, Finland, Lithuania, Greece, Romania, Turkey and Bulgaria.
• Finnish refiner Neste said Feb. 28 that due to the "current situation and the uncertainty in the market, Neste has mostly replaced Russian crude oil with other crudes." Neste has increased purchases of Norwegian crudes such as Johan Sverdrup and Grane for its 206,000 b/d Porvoo refinery, according to Platts trade flow tool cFlow.
• Sweden's Preem said it had ceased imports of Russian crude, although it noted that Urals only accounted for 7% of its crude oil purchases. A spokesperson at Preem also said it had turned to processing more North Sea and Norwegian blends at its two refineries.
• Indian Oil Corp. has asked its crude suppliers to stop offering Russian and Kazakh crudes to avoid any payment and insurance risks caused by international sanctions on Russia. The country's largest state-owned refiner informed traders that crudes like Russia's Urals and ESPO, along with Kazakhstan's CPC Blend, will no longer be accepted on a free-on-board basis, sources said.
• US imports of Russian crude oil have fallen to roughly 13,500 b/d since Jan. 1, down from an average of 199,000 b/d in 2021, according to the latest US data, reflecting declining reliance on Russian crude as the Ukraine crisis escalated.

-- Europe highly reliant on Russian diesel

• In February, Russian exports of ULSD from Primorsk in the Baltic were 1.64 million mt, while from Novorossiisk in the Black Sea, exports were pegged at 398,100 mt, according to copies of loading programs seen by S&P Global Commodities Insights. In March, around 156,000 mt of ULSD are so far scheduled to load from Tuapse, according to a copy of the loading program.
• In recent months, 60% of European imports of diesel have come from Russia, a dependency that rises to 70% for Northwest Europe, while in the Mediterranean 25% of diesel imports come from Russia, according to Kpler data.

-- Companies re-evaluating their exposure to Russian assets.

• Mining and commodities giant Glencore said March 1 it is reviewing its minority stakes in Russian state oil giant Rosneft and the parent company of Russian aluminum producer Rusal and all its business activities in the country.
• Glencore had already agreed to complete the sale of its stake in Russian oil producer Russneft last month.
• TotalEnergies said March 1 it would stop new spending on Russian projects, but the French energy company stopped short of divesting its current stakes.
• BP said Feb. 27 it will "exit" its near 20% stake in Russia's largest oil producer, Rosneft, in response to the Kremlin's decision to invade Ukraine. BP currently owns a 19.75% stake in Rosneft, which accounts for about half its booked reserves and a third of its overall oil and gas production.
• Norway's Equinor said Feb. 28 it is stopping new investments in Russia and will exit its Russian joint ventures because of Moscow's invasion of Ukraine. Equinor derived 14,000 b/d of oil equivalent from Russia in 2020.
• Shell said Feb. 28 it is breaking off its partnerships with Russian energy giant Gazprom, including the Sakhalin-2 crude and LNG project in the Russian Far East, and ending its involvement in the Nord Stream 2 pipeline project in response to the invasion of Ukraine.

Infrastructure

-- Crude to be released from emergency reserves

• The International Energy Agency has agreed to release a total of 60 million barrels of oil in a coordinated effort in response to Russia's invasion of Ukraine, the agency said March 1.
• The US government said separately it will release half of the total release, or 30 million barrels, from its Strategic Petroleum Reserve under the coordinated IEA action.
• IEA members held close to 4.16 billion barrels in total oil stocks as of the end of 2021, including 1.5 billion barrels held by governments as emergency reserves. The group of the world's top oil-consuming countries requires members to hold 90 days of net imports in government or commercial storage.
• The US SPR held 580 million barrels as of Feb. 25, about 56% of it sour crude and 44% sweet crude.