ISTANBUL
Global oil and gas trade traffic has started to change with the West looking more to the Middle East and West Africa in a bid to reduce reliance on Russian supplies, and as Russia directsmore exports to Asia.
Although the US announced an embargo on Russian energy imports and the UK decided to phase-out imports by the year's end after the start of the Russia-Ukraine war, the European Union
(EU) has taken action against Russian coal with a proposed ban on Russian coal imports effective from mid-August.
The EU is currently evaluating the impacts of an oil embargo on Russia, the bloc's biggest oil and oil products source. However, several European companies have already started to shun
Russian oil imports, reflecting a slight fall in the country's exports to the bloc.
Europe ramps up oil and oil import volumes from Middle East and US
The Middle East is one of the destinations that Europe is now pivoting toward to compensate for the loss of Russian oil volumes, according to Primary Vision Network data.
This data shows that elevated arrivals of diesel cargoes in Europe from the Middle East are set to push overall refined fuel imports from the region to an 18-month high and bookings for May 2022 suggest this trend will continue.
About 1.55 million tons of diesel-type fuels are due to arrive in Europe from the Middle East this month in total, more than doubling the 690,000 tons in March, while jet fuel shipments are also expected to climb to about 654,000 tons compared with 614,000 tons last month.
Primary Vision Network data suggests that total clean product arrivals in Europe will be about 2.4 million tons, the highest since October 2020.
"That includes 23 tankers that arrived with 1.49 million tons so far, plus an additional 11 ships en route to Europe with 751,000 tons," Mark Rossano, senior analyst at Primary Vision Network, told Anadolu Agency, adding that total arrivals in March were 1.22 million tons.
Expected arrivals in May 2022 are likely to maintain the momentum, with about 19 tankers provisionally booked to load 1.14 million tons in the coming days.
"In addition, eight tankers that are underway and hauling 494,000 tons are expected to arrive next month. More cargoes are likely to emerge," Rossano noted.
According to international news reports, the EU is preparing to import crude oil from Abu Dhabi next month in an attempt to reduce dependence on Russian oil volumes.
For Europe, another significant source of increasing refinery product imports is the US.
"The US has increased its refinery run rates as well as exports in product and crude to help fill the void in Europe. Europe is sitting on a record amount of gasoline in storage that will find its way over into the East Coast, while the US exports more diesel into Europe from the Gulf of Mexico," Rossano said.
"The US refinery run rates are at 91% and we expect them to stay between 91%-92% as we head into early May. Underlying demand in both Europe and the US remain underwhelming, which will also help the situation in the near term," he explained.
US ramps up imports from Latin America and West Africa
The UK is pulling in more crude from the North Sea and the US to compensate for the loss of Russian crude, while the US has compensated for the loss of Russian crude by increasing imports from Latin America and West Africa.
"We expect to see more Nigerian barrels finding their way into the US market, especially as Asia pulls less from West Africa," Rossano said. "We are also seeing floating storage increasing in the Middle East as the recent official selling price increases leave more cargoes in the water. Iraq was the only country to not increase prices to the same level which will pull more into the US and European markets," Rossano said.
Russian crude bound for Europe as "more Indian diesel"
As the EU negotiates an embargo on Russian oil, Russia is also seeking alternative markets to direct their exports, namely in Asia.
According to data compiled by real-time energy cargo tracker, Vortexa, Russian crude exports from the Baltic and the Black Sea ports are on the rise with growing volumes heading to Asia.
Russia's crude exports from Baltic and Black Sea ports to Asia stood at 100,000 barrels a day on average before the war but rose to 800,000 barrels a day this week.
India accounts for 60% of the exports, China imports 20% and the remaining volumes have no clear country of destination.
"India has topped 500,000 barrels a day of crude from Russia and we expect to see more as Europe is relying on Indian diesel to replace Russian diesel. India's diesel exports in March were the highest since April 2020 at 847,000 barrels a day with about 30% heading into Europe," Rossano said, noting that this is also increasing the miles per ton of "clean" products as India buys Russian crude and exports products back into Europe.
Indian refiners are maintaining run rates at about 106% given the health of the product market and access to discounted barrels, he said.
Due to the increasing volumes headed for Asia, Russia's oil and oil product exports have not declined as expected.
Vortexa data shows over the four weeks ending April 21 that 7.1 million barrels a day of seaborne crude and product were exported from Russian ports, marking a decrease of 600,000 billion barrels from the elevated levels in January and February.
Nonetheless, this export level is 100,000 barrels a day higher than the 2021 average.
Data on the latest week ending April 22 also signals Russia's exports will reach 7.6 million barrels a day.
More "crude in transit" as routes shift
As China picks up discounted cargoes, more West African grades are left in floating storage, Rossano said.
"The shift in flows has put a huge amount of crude oil on the water as there is a big increase in 'crude in transit'. Because it is taking longer to get from various points, it will remain elevated for the foreseeable future," he said. "We expect more cargoes to be added to 'crude in transit' given the additional miles per ton and length of time on the water."
Rossano explained that Russia’s need to continue production has increased the amount of crude that is being pushed on boats.
"They have a physical limitation of about 4.7 million barrels a day going into the water, which they are pushing up against," he said.
According to OilX data last week, Russia's oil production averaged 10.1 million barrels a day between April 1 and April 19, with the average production for the month forecast to stand at 10 million barrels a day, down from the March average of 11.01 million barrels a day.
OilX estimates if the current rate of decline continues, production on the last day of April will drop to 9.8 million barrels a day.
Data from the International Energy Agency (IEA) showed that total oil production in Russia stood at 11.3 million barrels a day in January.
LNG shifts continue as Europe buys more from US and other countries
As EU countries negotiate an embargo on Russian oil imports, on which the bloc is about 30% dependent, sanctioning Russian gas has not been on the agenda so far.
The EU imported 155 billion cubic meters of natural gas from Russia, accounting for around 45% of EU gas imports and close to 40% of its total gas consumption.
However, EU countries are actively seeking options to reduce gas reliance on Russia by adding 15 billion cubic meters more of liquefied natural gas (LNG) from the US along with volumes from countries like Algeria, Nigeria and Qatar.
The need to cut dependency on Russian gas has already become more urgent for the EU after Gazprom, Russia's energy company, announced it would halt gas supplies to Poland and Bulgaria as of April 27 as the countries rejected the Russian stipulation of gas import payments in rubles.
The countries are now the first in the EU to be cut off from Russian gas supplies.
"LNG shifts continue as Europe pulls more from the US and other parts of the world. Russian LNG is backfilling the shortfalls being created by Europe, extending its reach and pulling down cargoes from 'non-typical' trade partners," Rossano noted.
He said because Russia is now exporting more into Asian markets, the underlying miles per ton are also increasing.
"We expect to see Russia maintain current LNG exports as they pivot where it flows. A lot of cargoes flowed into Western Europe and the UK, but as sanctions increase, more of these cargoes will move into the Asian theater," he concluded.
