REFINERY MARGIN TRACKER: Russian crude cargoes taper off as margins rise

Russian crude export flows are starting to taper off as many refiners reach a turning point when it comes to buying Russian crude, but even those receiving barrels bought prior to Russia's invasion of Ukraine Feb. 24 are seeing high margins, according to an April 4 S&P Global Commodity Insights analysis.

So far, there has not been an observable drop in liftings from Russian ports, with most of the purchases likely made prior to the breakout of hostilities, according to S&P Global.

"Cargoes typically trade three weeks or more ahead of loadings, so we are just now entering the period when we might see a physical impact due to a reluctance from buyers to purchase Russian barrels," said Sergio Baron, an analyst with S&P Global. "That's a crucial indicator for the next weeks."

S&P Global assumes that Russian oil exports, including crude oil, products, and feedstocks will fall by roughly 2.8 million-3 million b/d, from late April through December, cutting Russian crude exports by around 2 million b/d from pre-war norms.

According to commodity tracker Kpler, March exports of crude from Russia averaged 4.556 million b/d, in line with export volumes in December, January, and February. So far, April volumes are averaging 1.1 million b/d.

And volumes of Russian crude in transit are waning. As of April 4, Kpler shows that just over 13 million barrels of Russian crude are on the water, down from 14.65 million barrels the week earlier.

Mediterranean benefits from Russian crude dependence

March imports of Russian crude into Italy averaged 420,000 b/d and refiners there are benefiting from the ability to process Urals. Mediterranean Urals margins rose to an average of $45.27/b for the week ended March 25, from $44.91/b the week earlier. So far for the week ending April 8, margins are averaging $53.24/b. "Urals is not easy to process due to its metal content. Not all refineries can run it. That is why not as much Urals is usually bought but quite a bit of CPC [Blend is]. Both are loaded at the same port," said one oil trader.

Chinese imports of Russian crude are averaging 474,000 b/d so far in April, down from the 966,000 b/d in March. India, however, significantly increased its imports of Russian crude in March to an average of 355,000 b/d from the 38,000 b/d in February.

Despite the widening discount between Russian crude grades like Urals to benchmark Brent crude, with market sources are reporting offers reaching as low as a $40/b discount in Rotterdam, traders report buyers are facing financial hurdles with letters of credit and tenders, all of which are likely to force Russia to reduce crude production, as purchases from China and India will not be able to compensate for the loss.