Shipowners in the Mediterranean were pessimistic that a traditionally strong fourth quarter will underdeliver in terms of volumes, due to the impending closure of Tuapse refinery in Russia for a large part of the fourth quarter.
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The predominantly export-oriented 240,000 b/d Rosneft-owned Tuapse refinery -- located on the Black Sea coast in southern Russia -- is expected to carry out works starting in early November, lasting until mid-December, according to sources.
The turnaround will affect Med players, who typically rely on increased outgoing volumes of refined products from the Black Sea in the winter. The increased weather delays typically help keep ship occupied in the basin, particularly in the Turkish Straits.
Gasoil exports from Tuapse in the fourth quarter of 2020 totaled 1.451 million mt, while naphtha exports from the port amounted to 810,000 mt.
The potential loss of naphtha volumes will be seen as a blow for Long Range tanker owners. Winter restrictions in the colder months typically prevent LR2 from loading cargoes at the port, with charterers seeking LR1 tonnage instead.
Support for naphtha prices
The European naphtha market was stronger in North West Europe, with the lagging Mediterranean redirecting some flows north as arbitrage East was not of high interest to market participants.
About 213,000 mt of naphtha from Mediterranean and Black Sea ports is expected to flow to NWE destinations in September so far, above the 207,000 mt three-month moving average, Kpler data showed. The total for August comparatively stood at 265,000 mt.
However, the works in Tuapse refinery could provide support to the regional market, particularly if petrochemicals buying activity remains strong in Europe, in line with expectations.
"There might still be some flows out of Tuapse overall during the period, but much lower due to the closure of the refinery," a source said.
But the loss will likely be more strongly felt in the Med Handysize markets, as prospects for reducing open tonnage in the basin will be curtailed with less vessels transiting through the Turkish Straits for Black Sea runs.
"It's a super important market, so this is a big blow," a shipowner said. "Maybe we won't see any improvement in the quarter as there is no transparency on whether barrels will be compensated from elsewhere in the Black Sea," he said.
Modest impact on gasoil
In the Mediterranean gasoil complex, the resulting drop in Black Sea arrivals may offer some support to a weakening market. Recently, the complex has been faltering due to lengthening supply and an increasingly less optimistic demand picture.
Black Sea gasoil exports into the Mediterranean in September so far were forecast at 497,000 mt, according to Kpler, down 14.6% on August.
However, any resulting support for the 0.1%S gasoil complex is expected to be modest. Much of the high sulfur gasoil arriving in the region from Tuapse is converted into ULSD, rather than into the 0.1% grade.
"The closure will impact a little bit [on the Med], but it won't be massive," a source said. "Most is straight run for desulfurization, so not used as much for 0.1% [gasoil]."