©Bloomberg. Oil pumping cylinders, also called
(Bloomberg) – Oil importers are rushing to assess the risk of buying Russian supplies as tensions over Ukraine enter a potentially watershed week.
Traders and buyers of Asia’s favorite oil grades from Russia, particularly ESPO and the Far East’s Sokol, are increasingly concerned that they could be caught up in possible trade restrictions if the producer of the ‘OPEC+ was sanctioned, they said. While that outcome is less likely, market participants told Bloomberg they are beginning to reconsider supply plans for April.
Several buyers in Europe said they were still waiting to see the full impact of the situation in Ukraine. However, prices are already hurt, with Urals crude in Europe plunging into the biggest forward discount since April 2020, according to data from S&P Global (NYSE:) Platts for Friday. This contrasts sharply with the strength of almost every other corner of the oil market.
Asian-focused ratings held up well. Last week, Sokol traded at its widest premium in two years as buyer interest increased due to strong gasoline and diesel margins as well as a divergence in oil benchmarks. Traders will be keeping a close eye on the upcoming Sokol tender, which closes on Tuesday, as well as the ESPO trading round which begins this week.
Crude oil from Saudi Arabia and Abu Dhabi would be potential beneficiaries if Asia avoided Sokol and ESPO, traders said. Buyers are likely to demand more supplies from the kingdom, which are sold long-term, or look to one-time supplies from Abu Dhabi’s Murban.
West Texas Intermediate and North Sea oil are less viable alternatives in Asia, with Western demand for these grades increasing and making them more expensive relative to Middle Eastern supplies. Nearby prices are also very high compared to later prices, which means that these cargoes are not attractive in regions that take longer to ship.
Any sanctions or trade restrictions against Russia will likely drive up crude prices, an outcome that would not be popular in the United States and around the world. Oil has gained more than 20% since the start of the year as demand has rebounded as economies reopen, and any disruption in trade flows will only exacerbate the impact of higher prices on the economy. inflation and economic growth.
Ukrainian President Volodymyr Zelenskiy spooked markets with what his office later said was a sarcastic comment about the rest of the world predicting a date for an attack by Russia. The United States told citizens to leave Belarus on Tuesday, citing “an unusual and concerning Russian military buildup along the Belarusian-Ukrainian border.”
Apart from crude, Asia is also a big buyer of refined petroleum products from Russia such as naphtha, diesel and fuel oil. Russian exports of naphtha from the Black Sea port of Tuapse are an important source for much of Europe and Asia. Any restrictions on trade could drive up prices and send the product on the same upward trajectory as fuels such as gasoline and diesel.
(Updates with the latest information on Russia and Ukraine in the penultimate paragraph.)
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