Russia's refineries have started feeling the effect of a sharp fall in export sales of oil products in the wake of the country's invasion of Ukraine.
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Rosneft's 240,000 b/d Tuapse on the Black Sea halted crude uptake March 4 because it cannot ship its production, while the company's 342,000 b/d Ryazan refinery in central Russia has reduced the volume it is accepting.
While there are no sanctions on exports of Russian crude or refined oil products, limited access to credit for Russian-related deals and the fear of energy sanctions being imposed have resulted in typical buyers avoiding Russian cargoes where possible, sources said.
Related story: Buyers shun Black Sea loadings of Kazakh CPC crude due to Russia-Ukraine conflict
Thus, while Russian refineries have maintained normal processing rates, concerns have been rising that they would be forced to cut runs as storages become full on declining exports.
Tuapse produces feedstock such as fuel oil, naphtha and vacuum gasoil for export, rather than finished-grade products.
They are subsequently processed further at refineries in Europe and elsewhere and, as Portuguese Galp's CEO Andy Brown said last week, if VGO supply from Russia was disrupted, "European refiners would be in "uncharted territory".
However earlier this week, Galp said it will suspend all imports of Russian oil products, in particular VGO, in response to the invasion of Ukraine.
Others are following and feedstock traders have started searching for alternative supply, with refineries in the Persian Gulf and Asia seen as potential source of material, sources said.
"Yes, Jazan is an alternative source but I honestly have no idea at the moment about what can be the solution to replacing the Russian barrels," one feedstock trader said. Saudi Arabia's Jazan refinery is in the process of starting up, and was running at half capacity in January.
Some sources said refineries in Europe will need to increase runs in their vacuum distillation units.
That said, the market will have difficulty replacing the fallout from the missing Russian volumes because there was "nowhere else to get VGO from", according to a second trader.
Meanwhile, fuel oil, which despite years of upgrades in Russia, remains a significant part of refinery yields and oil product exports, has also seen typical buyers reluctant to take cargoes.
"The credit issues ... are causing supply disruptions to fuel oil supply" from the Black Sea, according to a fuel oil trader.
Letters of credit have been difficult to secure for Russian-origin products, according to sources.
While there were still tankers fixed for lifting products from Russia's Black Sea ports, a large portion of shipping companies have stated their unwillingness to load at Russian ports, particularly in the Black Sea, amid the risk of potential new sanctions.
"We are not entering into new business to or from Russian until we have further clarity on what further sanctions could be imposed," one shipowner said.
However, other shipowners were prepared to capitalize on higher rates resulting from the reduced pool of available tonnage. "Under certain conditions we can still look at Russian ports," a second shipowner said.
Rates for Black Sea-Mediterranean shipments, basis 30,000 mt, reached a multi-year high at Worldscale 475 on March 3.