Sanctions on Russian oil production and exports leading to potential cuts could result in huge diesel and crude oil shortages in weeks, a senior analyst at London-based data company OilX, Neil Crosby, told Anadolu Agency in an interview.
Even though a blanket ban on Russian oil has not been applied, except for some small countries along with the US and UK, many companies are shunning away from Russian oil partly because of reputational risks but also in reaction to Russia's war in Ukraine.
Russia is currently the world's third-largest oil producer and the biggest oil exporter, according to the International Energy Agency (IEA).
'Russia exports about 4.5-5 million barrels of crude per day and also about 3 million barrels of oil products like diesel, gasoline, fuel oil and naphtha. Diesel accounts for around 2 million barrels of oil products exports,' Crosby said.
Refineries are unable to keep up with the diesel demand which currently stands at 30 million barrels a day, following a strong rebound in demand from the US, OECD, Europe and Latin American countries after the COVID-19 pandemic.
According to Crosby, the complication with the potential lack of Russian supplies is adding to the risk of massive shortages in not just diesel but also in crude oil.
'The main issue now is that the market does not really know what the impact is. A lot of Russian oil that was exported in March was bought already weeks ago and will load and flow with the market. Thus, we still have to wait to see in the next few weeks how much Russian oil exports will actually decline,' he said.
OilX, which tracks data closely, says Russian exports have fallen by a few hundred thousand barrels per day at the most in parallel with a drop in Russian oil production following sanctions.
'If we get into a state where we actually see Russian diesel and crude exports dropping really a lot, anywhere between 50%, then there will be a lot of shortages of crude and diesel as well as very severe economic consequences,' he stated.
The IEA forecasts that global markets could lose around 3 million barrels of Russian oil starting this month.
- Russian exports and production may drop faster than expected due to domestic overstocking
Crosby believes that if Russian exports fall by a couple of million barrels daily, the country will first fill up its crude stocks to full capacity. However, when the storage is full, they will then be forced to short the production.
He added that Transneft, Russia’s state-owned company and pipeline system operator, said they were already having difficulties with overstocking.
'It seems the Russian oil infrastructure is already struggling with the volumes domestically, which means that Russian production perhaps needs to decline faster than we potentially might have thought, one or two weeks ago,' Crosby said.
Transneft is estimated to have a storage capacity of 153 million barrels of crude and refined products.
According to recent news reports, leading Russian oil refiners told the energy ministry that they expect to make further cuts to refinery runs in the coming weeks because of overstocking as European buyers see Russian products as 'contaminated'.
- European refineries most vulnerably but global markets as well
Crosby said if one million barrels of Russian diesel is lost from the global 30 million barrels, it would be a huge loss for the global oil market.
'Russia feeds the world's and Europe's refineries which are in line to be hit the most. There are lots of refineries in Central and Eastern Europe that are fed by the overland Druzhba pipeline carrying Russian crude into Europe. In the case that this crude is cut off, there are very limited options for these refineries in getting replacement feedstock as we are talking about 800,000 barrels of Russian oil per day,' he noted.
He further warned that oil supplies globally will be put in jeopardy, becoming hard to keep up operations with the loss of Russian volumes.
The diesel supply crunch will most likely increase prices worldwide, which have already hit historic high levels after the war started, he said.
'I think prices at the moment represent something of a halfway point between two extremes of the balance. So if it turns out that Russian oil exports do not decline that much next month and other players like India, and China, pick up a lot of the spare Russian oil that has been left on the market, then I think price increases could be limited,' Crosby said.
However, if it becomes clear that the loss of Russian oil is very severe, he said then there is room for prices to move significantly higher over the next few weeks.
By Nuran Erkul Kaya