Russia's Ryazan refinery targeted in second drone strike: reports

A fire broke out at Russia's Ryazan refinery after an overnight drone strike, according to local reports May 1, with the Rosneft-owned plant targeted by suspected Ukrainian attacks again just weeks after returning to full capacity.

Russian media reported that the refinery was ablaze after an attack on the site, circulating videos of the fire in the early hours of the morning. Ryazan regional governor Pavel Malkov confirmed via Telegram the region was targeted by drones May 1.

Russia's defense ministry said drones were downed over several areas in the south of the country during the night, including one each in Ryazan, Kursk and Belgorod and three in Voronezh.

Though damage to the 342,000 b/d Ryazan refinery remains unconfirmed, the attack signals a return to attrition tactics by Ukraine on Russia's energy infrastructure. Ryazan had only recently resumed full operations last month after a March 13 attack damaged two of its four crude distillation units, together accounting for 70% of capacity.

Turnarounds were completed surprisingly quickly however, with the smaller 85,000 b/d AVT-4 unit back online by late March and the 180,000 b/d AT-6 running again by early April.

As Russia's country's third-largest refinery by nameplate capacity and a key domestic supply hub, Ryazan has been a focal point for Ukrainian strikes as it has has struggled to hold ground on the battlefield and weathered heavy attacks to its power plants.

Refinery targets in focus

Eugene Rumer, Director and Senior Fellow for the Russia and Eurasia program at Carnegie Endowment, a think tank, suggested that Ukraine could retain its focus on energy targets as Russian ground troops have slowly made advances. "Occasional deep strikes at targets inside Russia generate publicity and boost morale," he said in an April 25 report, pointing to the strategic role of attacks that have targeted refineries up to 1,100 km into enemy soil.

Attacks on Russia's energy infrastructure defy instructions by the US, which has warned against activity that could trigger global price shocks. Analysts had speculated that the approval of a $61-billion aid package by the US could realign Ukraine with military advice from the White House, but its recent show of force defied such expectations.

After a three-week hiatus, Ukraine launched one of its largest drone strikes to date on April 27, when 66 drones were downed over Russia's Krasnodar region, according to Russia's defense ministry, leaving both its Ilsky and Slavyansk refineries damaged.

Ukrainian-made drones are ill-equipped to take out entire refineries, typically spread over several processing units. However high-frequency attacks can wield economic damage by requiring costly repairs and air defenses, security experts have said.

Oil market resilience

Relative resilience in Russian oil flows have prompted some speculators to downgrade expectations of potential supply shocks, however. By focusing on capacity ramp-ups across refineries and units unaffected by drone strikes, Russia has reduced the impact of outages, while units have been brought online swiftly after damage in recent months.

According to S&P Global Commodities at Sea data, Russia's largest export market -- diesel and gasoil -- averaged 766,000 b/d in April, down from 979,500 b/d the previous year. ICE low sulfur gasoil futures have proved largely unresponsive to resumed attacks however, and have now dropped 10% since their April 5 peak, according to assessments by Platts, part of S&P Global Commodity Insights.

ICE LSGO futures dropped 1.3% on the week in the seven days to April 30 to $774/mt.

In an April 29 report, Andreas Economou and Bill Farren-Price, head of Oil Research and senior research fellow at the Oxford Institute for Energy Studies, said markets could be poised to weather further supply shocks without facing significant pressure.

"We estimate that the market could weather a 10%-12% decline in Russian product exports on a quarterly basis," they said. "However, with diesel output being the most impacted by the drone attacks, renewed attacks could sustain concerns over global middle distillate markets further into Q2 as diesel stocks decline and seasonal demand strengthens."