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EU refiners turn to Kazakh, Azeri, Norwegian crudes to plug Russian supply gap


Kazakh CPC Blend now EU's biggest crude source

Refiners replacing over 1.5 mil b/d of Urals imports

EU oil products imports jump from India, Turkey

  • Author
  • Robert Perkins
  • Editor
  • Manish Parashar
  • Commodity
  • Natural Gas Oil Metals Shipping
  • Tags
  • Gold United States
  • Topic
  • War in Ukraine

European refiners have accelerated their shift to buying more crudes from Kazakhstan, Azerbaijan, Norway, the US and Guyana as Western sanctions on Moscow saw the trade bloc's Russian imports sink to record lows, according to tanker tracking data.

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Once Europe's biggest supplier of crude shipping a fifth of the EU's seaborne imports, Russian oil flows to the region have collapsed in the wake of the Ukraine war.

10 days after the EU's embargo and G7 price cap on Russian crude kicked in, the EU's seaborne imports of Russia's key export-grade Urals crude have slumped to just 123,000 b/d in the first half of December, according to data from S&P Global Commodities at Sea, shrinking from 1.5 million b/d before the war at the start of the year.

Urals is a medium sour crude that has been a staple for refiners in Northwest Europe and the Mediterranean. Including pipeline flows, Europe was importing about 2.7 million b/d of mostly Urals crude before the invasion. The region was also importing another 1.5 million b/d of Russian oil products.

To replace Russian crude, many EU refiners have turned to Kazakhstan's CPC Blend and KEBCO crudes, which combined, become the EU's biggest source of crude imports at 1.2 million b/d in November, CAS data showed, making up 13% of the bloc's seaborne crude imports.

Other key crude grades helping to plug the gap in Russian supplies of medium sour crudes are Azeri Light, Brazil's Lula/Tupi, Norway's Johan Sverdrup, US' WTI Midland, Guyana's Liza and Unity Gold blends.

Combined, EU imports of the six grades rose 770,000 b/d from prewar levels in December, CAS data showed. Canada's Hibernia crude and Middle Eastern producers Saudi Arabia and Iraq have also helped plug the supply gap, the data showed.

Oil products flows

While EU seaborne crude imports from Russia are set to almost dry up, some European refiners still have access to cheap Russian crude under exemptions and will continue to enjoy bumper margins.

The value of Urals crude has been trading below the G7's $60/b price cap since Nov. 18 and Platts last assessed it at $47.355/b on Dec. 14, a $36.25/b discount to Dated Brent, S&P Global Commodity Insights data showed. By contrast, margins for processing Nigeria's Bonny Light and WTI HFO-based margins have been around $15/b while Forties crude margins were recently near $10/b, according to S&P Global.

EU sanctions banning imports of Russian crude from Dec. 5 included an exemption for crude sent from Russia via the Druzhba pipeline into Central Europe -- including to Hungary, Slovakia, the Czech Republic and Poland. The exemptions also allow Bulgaria to continue importing shipped Russian crude until December 2024, allowing the Lukoil-owned Neftohim refinery in Burgas to enjoy high refining margins.

Supply uncertainties remain, however, around the volumes of EU oil products imports sourced from Russian crude but processed outside the trade bloc. Although not subject to the EU's embargo, CAS data showed that the EU's oil products from India and Turkey, two countries that have been importing more Russian crudes, have trebled to 240,000 b/d since the start of the war.

As the EU embargo and G7 price cap extends to cover Russian oil products from Feb. 5, 2023, analysts at S&P Global assume Russia will be initially forced to cut its crude and condensate output by 1 million b/d between November and March to 1.5 million b/d below preconflict levels.