Russia’s additional Asian crude export weighing on prices

Russia is offering more crude oil for exports to Asian markets. The higher supply is weighing on prices. Analysts believe that fresh US sanctions against Russian companies including Rosneft could also prompt some buyers to shy away from the grade and put pressure on the main marketer of Eastern Siberian-Pacific Ocean (ESPO) oil, Rosneft, to lower prices.

Some analysts were sceptical that ESPO could be impacted by the sanctions because according to them, “refiners need ESPO, so they will continue to buy as long as it’s not prohibited, but they would have to persuade banks that there’s currently no problem.” The sanctions, though, may cause banks to be more cautious on financing deals that include Rosneft.

The new sanctions imposed by Washington in effect close medium- and long-term dollar funding. US companies are now prohibited from engaging in any “new debt of longer than 90 days maturity or new equity” with the energy firms and banks. Traders and analysts said trade financing, required to cover Rosneft’s trading operations, comes in well below that period.

Rosneft in a statement said it would continue to work on its existing projects and agreements and honour its obligations despite the sanctions. The company also said it has sufficient liquidity to service its debts, and its financial position allows it to deliver on the key indicators of its strategy and dividend policy.

Asian refiners revel on more options

Additional Russian supply will give Asian refiners more options on their crude mixes, intensifying competition with rival Middle East grades, at a time when they are already processing less oil amid low profits and slow seasonal demand.

Russia could ship an extra 1.2 million tonnes of ESPO oil from the Pacific port of Kozmino this year, dumping it into a market already flooded with crude.

The new export volumes – due to a fire that halted output at Russia’s Achinsk refinery in June – will amount to two or three 730,000-barrel cargoes each month until the end of the year. This would be on top of the 19 or 20 cargoes per month the port plans to export this year.

Asian buyers have reacted by bidding premiums for ESPO crude to their lowest in more than a year. Japan, China and South Korea are the top ESPO buyers.

Russia began production of ESPO crude at newly developed fields in eastern Siberia in 2009. The sour grade quickly became popular among Japanese, Chinese and South Korean refiners as an alternative to Middle Eastern grades due to its proximity.

Frank Uzuegbunam