Russian oil is still powering Europe’s cars with help of India
Russian oil is still powering Europe — just with the help of India. Back in December, the European Union barred almost any seaborne crude oil imports from Russia. It extended the prohibition to refined fuels two months later. However, the rules didn’t prevent countries like India from snapping up cheap Russian crude, turning it into fuels like diesel, and shipping it back to Europe at a markup. The Asian country is on track to become Europe’s largest supplier of refined fuels this month while simultaneously buying record amounts of Russian crude, according to data compiled by Bloomberg from analytics firm Kpler. “Russian oil is finding its way back into Europe despite all the sanctioning and India ramping up fuel exports to the west is a good example of it,” said Viktor Katona, lead crude analyst at the firm. “With India taking in so much Russian barrels, it’s inevitable.” The development is double-edged for the EU. On the one hand, the bloc needs alternative sources of diesel now that it has cut off direct flows from Russia, previously its top supplier. However, it ultimately boosts demand for Moscow’s barrels, and means extra freight costs. It also means more competition for Europe’s oil refiners who can’t access cheap Russian crude. Europe’s refined fuel imports from India are set to surge above 360,000 barrels a day, edging just ahead of those of Saudi Arabia, Kpler’s data show. Russian crude oil arrivals to India are expected to surpass 2 million barrels a day in April, representing almost 44% of the nation’s overall oil imports, according to Kpler data. More than half of Russia’s seaborne oil shipments were to the European Union and Group of Seven nations before the bloc began to cut purchases in response to the nation’s invasion of Ukraine in early 2022.
Germany Doubles Down On LNG Fearing Another Gas Pipeline Attack
Germany looks to install one or two floating LNG import terminals at its largest island, Rügen in the Baltic Sea, as officials do not rule out further attacks on energy and gas pipeline infrastructure, sources with knowledge of the plans told Bloomberg on Thursday. Germany cannot rule out another attack on a pipeline carrying natural gas after the mysterious sabotage on the Nord Stream pipelines last autumn, according to Chancellor Olaf Scholz, Bloomberg’s sources say. Until the middle of 2022, Germany received most of its gas from Russia via Nord Stream 1 before Russia axed deliveries in early September, claiming an inability to repair gas turbines because of the Western sanctions. The sabotage on Nord Stream 1 and Nord Stream 2 occurred at the end of the same month. After the Russian gas supply stopped, Norway is now Germany’s top natural gas supplier, and supplies are coming via pipelines. Concerned about a potential new attack on pipeline infrastructure, German officials are now looking to have floating LNG import terminals at the Mukran port on the Rügen island by 2024, according to Bloomberg’s sources. Faced with the prospect of no Russian gas, Germany rushed to install floating storage and regasification units (FSRUs) last year. Europe’s biggest economy plans to have as much as 70.7 million tons per year of LNG import capacity by 2030, which will make it the fourth-largest LNG import capacity holder in the world. Germany plans to have a total of 10 FSRUs, some of which will be removed and replaced by onshore regasification facilities once they are built. The rush to have LNG import terminals as soon as possible will make Germany the fourth largest import capacity holder behind the major Asian LNG buyers South Korea, China, and Japan. Germany may end up using less LNG import capacity than it has planned to roll out this decade, but better safe than sorry, the chief executive of the top German utility, RWE, said last month in an interview with German business magazines Der Stern and Capital.
The Brent Oil Benchmark Is About To Change Forever
West Texas Intermediate Midland crude is about to be added to the Brent benchmark contract this June. This would be the first time a non-North Sea crude has been added to the benchmark basket. And it will change the oil market forever. First, however, why is WTI being added to the Brent basket? It’s really simple. There has been more U.S. crude oil going into Europe since Russia’s invasion of Ukraine. At the same time, the output of the grades making up the Brent basket has been falling consistently, and so has trade in these grades. “We’re really basing the world’s biggest and most important oil benchmark off a very small pool of market activity,” James Gooder, Argus vice president, told Reuters. The latter cites data from its Refinitiv service as showing the production of Brent, Ekofisk, Troll, Forties, and Oseberg—the original basket members—had fallen to less than 700,000 bpd from some 850,000 bpd in late 2020. At the same time, the amount of WTI crude that is arriving in Europe daily has increased massively, hitting 1.25 million bpd last month, making it a perfect candidate for the international benchmark basket, according to S&P Global, which is making the addition. “WTI Midland is the best candidate for this because it already has a fairly similar refining slate to most of the North Sea grades,” S&P Global’s director for crude and fuel oil markets told Reuters. It is more than that, however. According to some analysts, WTI will not just become another member of the Brent crude basket. It will come to dominate it, and this means that U.S. political, economic, and industry developments would come to have a much bigger effect on Brent crude prices than before. “Bottom line for Brent is that it will be much more influenced by U.S. fundamentals such as Strategic Petroleum Reserve releases and Permian production,” Rebecca Babin, senior energy trader at IBC Private Wealth US, told Reuters. Permian oil production will be particularly relevant when WTI is added to the Brent crude basket. That’s because “The vast majority of U.S. crude exports originate from Texas ports, and most of the crude shipped out originates from the Permian basin, which has been the growth engine for U.S. oil production,” according to Aaron Brady, a VP of energy oil market services at S&P Global, who spoke to the Houston Chronicle. Some industry observers have pointed to uncertainty about the production growth prospects of the shale patch, which currently provides most of U.S. oil output. According to one of them, Saxo Bank’s commodity chief Ole Hansen, the addition of WTI to the Brent crude basket will not have much of an impact on prices. Yet despite this uncertainty, shale production continues to grow, albeit more slowly and modestly than during the peak boom years. “The Permian Basin still has thousands of premium well locations remaining, and is expected to continue growing this decade,” S&P Global’s Brady told the Chronicle. So, the addition of West Texas Intermediate to the Brent crude basket may seem like an eccentric move, but it actually makes perfect sense. The U.S. oil is being sold in Europe in ever-growing volumes while the output of previous Brent crude basket members is falling. Middle Eastern oil has its own benchmark, and OPEC has its own basket. It seems the addition was only a matter of time. With the addition of WTI to the basket, Brent’s price may fall: the price of dated Brent is based on the price of the cheapest grade in the basket, and WTI has always traded at a discount to Brent. And that’s good news for consumers.