Wednesday, March 22

Russian crude oil differentials tumble on sanction concerns -sources

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SINGAPORE — Russian crude oil grades were hammered in physical markets on Monday with premiums for ESPO – Russia’s key export blend to Asia – plunging by more than half from their peak this month on concerns about sanctions, industry sources said.

Russia is facing severe disruption to its exports of all commodities from oil and metals to grains after western nations imposed stiff sanctions on Moscow following its invasion of Ukraine.

Some Russian banks also faced being cut off from the SWIFT international payment system.


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That is prompting some banks to stop issuing letters of credit to oil importers looking to buy Russian oil, and some shipowners to reject Russian cargoes.

The March spot price spread between Russian Urals crude and dated Brent oil in northwest Europe plunged to its widest discount on record last week as buyers and shipowners shied away.

Similarly, spot premiums for Russian ESPO crude over Dubai exported from the Far East Kozmino port have tumbled as financing concerns sidelined buyers, traders said.

Pricing agency Argus Media assessed ESPO crude’s premium to Dubai quotes on Friday at $3.11 a barrel, the weakest in more than a month and down by more than half from $7.24 a week earlier.

The latest ESPO trade was conducted late last week with Russian producer GazpromNeft selling an April-loading crude cargo at a premium of just above $6 a barrel to Dubai, down by more than $1 from peaks this month, traders said. BP may have bought the cargo, they added.


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“Apparently all Russian crudes are suffering because there are no buyers,” a Singapore-based trader said.

Russia produces 10% of global oil and supplies 40% of Europe’s gas. The producer counts China as one of its biggest customers, while Russian ESPO and Sokol crudes are also imported by Japan and South Korea.

Russian oil supplies via pipelines to China, estimated at a total of 800,000 barrels per day transported through the ESPO line and Kazakhstan, remained unaffected, two Chinese state oil traders said.

“Operations are normal on pipeline supplies. There are no problems,” said one official.

A spokesperson for SK Innovation, owner of South Korea’s top refiner SK Energy, said Russian crude accounted for less than 5% of its imports last year. The company said it could replace Russian oil with cargoes from southeast Asia, the United States or the Middle East if need be.


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Record low prices for Urals crude drew robust demand from India last week, although it was not immediately clear if financing for these cargoes had been impacted.

China and India – drawn by low prices – may explore ways to work around Russian financing restrictions, such as by paying in other currencies, traders said.

“Urals is already super value for money, and it’s the same thing for ESPO,” a Singapore-based trader said.

“The official rule is that there isn’t any effect on energy payments, but banks choose to be overly cautious,” he added.

(Reporting by Florence Tan; additional reporting by Joyce Lee in Seoul, Aizhu Chen in Singapore and Nidhi Verma in New Delhi; editing by Gavin Maguire and Jason Neely)



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