MOSCOW (MRC) -- Russia may further cut overseas supplies of its Urals oil next month due to rising demand from domestic refineries as coronavirus-related restrictions ease, reported Reuters with reference to sources familiar with the data and oil producers’ plans.
The wrapping up of the refineries’ seasonal maintenance is also expected to increase the appetite for the crude from processing plants.
Russia agreed to reduce its oil production in May through to July by almost 2.5 million barrels per day of as a part of a deal with other oil producers, a group widely known as OPEC+, to combat the economic fallout caused by the coronavirus.
Moscow lifted its coronavirus lockdown last week.
“Demand for gasoline is ramping up fast, we have to increase runs or there will be nothing to supply to our petrol stations,” a source with a major Russian oil company told Reuters.
Exports of Russia’s flagship Urals oil bend in June have been set to decline to the lowest in months, to just 4.4 million tonnes from the Baltic ports and 1.2 million tonnes from the Black Sea’s Novorossiisk.
Traders familiar with Russian oil companies’ export plans expect oil loadings from the Baltic Sea ports to decline further next month to roughly 3 million tonnes.
Low supplies of Urals oil has driven the premium for the grade to dated Brent to historic highs in early June - plus USD1.95 and USD1.80 per barrel due to a lack of alternatives in Europe.
“Urals alternatives are either absent or very expensive,” a trader in northwest Europe market said.
Russia’s primary offline refining capacity is expected to decrease to 1.6 million tonnes from 3 million tonnes in June, according to Energy Ministry data and Reuters calculations.
It means oil companies will have roughly 1.4 million tonnes less oil for export, traders said. An increase in gasoline demand in June has been above expectations so far, which may lead to even more supplies going to domestic refineries, they added.
As MRC wrote previously, global oil consumption cut by up to a third in Q1 2020. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.
Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.
We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
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