Since the start of 2018, Russia’s pipeline crude oil exports to China have been growing, while its seaborne shipments to Europe have been falling.
At the beginning of this year, Russia doubled the capacity of pipeline exports to China, where it has been the top oil supplier for more than a year after overtaking OPEC’s top exporter and de facto leader Saudi Arabia last year.
While Russia is trying to get a bigger chunk of the fast-growing Chinese oil market, it is doing so at the expense of its number-one oil customer, Europe. Decreased seaborne crude oil shipments to Europe may prompt European refiners to buy more Middle Eastern barrels and crude oil from the U.S., analysts say. In addition, lower Russian seaborne shipments could add to the woes of the tanker freight sector, which is also feeling the decline of OPEC’s exports due to the oil cuts pact and an oversupply of tankers.
According to loading programs obtained by Bloomberg, Russia’s crude oil exports from its western ports on the Black and Baltic Seas—most of which go to Europe—will have dropped by 19 percent to 1.86 million bpd between January and May 2018. At the same time, Russia’s exports via pipeline to China soared 43 percent to around 750,000 bpd in Q1 2018, data by pipeline operator Transneft shows.
In March, Russia kept its top oil supplier spot to China for a 13th month running, with exports up 23.6 percent on the year to 1.36 million bpd, ahead of Saudi Arabia’s 1.09 million bpd exports. Russian oil exports to China jumped 22 percent annually in the first quarter of 2018.
As Russia is boosting crude oil supply to China at Europe’s expense, European refiners may look to replace some of the Russian barrels with Middle Eastern and U.S. crude oil, according to Alan Gelder, Vice President Refining, Chemicals and Oil markets, at Wood Mackenzie. Related: Shell Wants Deepwater Breakevens Below $40
“The Middle East will have less medium-sour crudes going to Asia because of the growth in Russian volumes, so then they would push those barrels into Europe,” Gelder told Bloomberg.
The decreased Russian oil shipments to Europe are currently not affecting crude prices of the Urals grade, because a number of European refineries are undergoing scheduled maintenance. Moreover, increased U.S. oil intake into Europe—combined with the current maintenance season ahead of the summer peak gasoline demand—has led to the Russian Urals grade trading at four-year-lows in Europe, according to Bloomberg data.
U.S. crude oil and condensate exports to Europe are expected to have hit an all-time high of around 550,000 bpd in April, according to shipping programs, and traders expect the record pace to continue this year as U.S. oil grows ever more popular with European refiners, often at the expense of oil cargoes from OPEC nations and Russia.
According to Reuters data, Europe was the destination of 7 percent of all U.S. oil exports in 2017, but that percentage has now increased to 12 percent this year.
Total U.S. crude oil exports hit a record high of 2.331 million bpd for the week to April 20, EIA data shows, supported by a wider discount of WTI to Brent, which is now around $6 a barrel, compared to half of that—around $3 per barrel—in early March.
Related: Canada’s Oil Patch To Turn Profitable In 2018
“U.S. tight oil could fit the need for summer driving season,” WoodMac’s Gelder told Bloomberg. “In the late spring and into summer as we’re starting to see gasoline strength, Europe would then be the logical home.”
ADVERTISEMENT
Russia’s pivot to increase its oil exports to China is upending market shares and oil flows on the market globally. Russia is now China’s number one oil supplier, ahead of the leading Middle Eastern exporter Saudi Arabia. At the same time, lower Russian oil cargoes to Europe could leave European refiners looking to buy more Middle Eastern and U.S. oil. With the WTI/Brent spread so wide, U.S. shipments to Europe this summer could set new records at the expense of both Middle Eastern (OPEC) producers and Russia.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Soaring Oil Prices See Saudi Economy Bounce Back
- Oil Prices Spike As OPEC Compliance Hits New Record
- Is This The Most Bullish Oil Market Of All Time?
Russia should also sell more gas to China and less to Europe....Russia can help Europe to be independent of Russian energy !
"Journal du Dimanche has quoted French President Emmanuel Macron as saying he would
like to maintain a "historic and strategic dialogue" with Russian counterpart Vladimir Putin.
Signaling his readiness to "align Russia with Europe and not to allow Russia to retire
into itself," Macron alleged that "Putin is dreaming of his country reemerging as a great
power."
"He stressed that he perceives Russia as "part of Europe..."
America, and Europe want to hit Russia with, what are, in my book, illegal, and unnecessary sanctions, why should they care about Europe.
You have the yanks supporting a criminal government running the Ukraine, who owe Russia millions in in back payments, and then trying to muscle in by shipping oil from the states, at a far higher price to Europe. Those governments don’t care about the fact that the people will be forced to pay higher prices just because of their pathetic attitude towards Putin. Probably due to some extent, that Russians love their leader, when in the West, people for the most part, hate theirs.
If exporting to Asia keeps the Russian economy afloat, good luck to them.
All the intimidation, and they are not weakening. Germany has never broken Russia, and it never will, because the Russians love their freedom, and will not be controlled by Globalist warmongers