Russia Ban Set to Upend European Crude Trade
11.17.2022 By - NEWS

November 16, 2022 [Energy Intelligence] – As European refiners look to replace Russia’s Urals crude grade ahead of an EU import ban that takes effect in just three weeks, Norway is emerging as their preferred source of alternative feedstock.


Shipments of Norway’s medium, sour Johan Sverdrup crude are set to rise to 640,000 barrels per day in December, the largest export program since the field started producing in 2019, as operator Equinor starts Phase 2 of production.

Cargoes have been snapped up by northern European refiners, notably Sweden’s Preem and Finland’s Neste — two big legacy buyers of Urals that have phased out their purchases since Moscow’s Feb. 24 invasion of Ukraine.

But some buyers have been unable to get their hands on the prized Norwegian grade, and competition will get fiercer after Dec. 5, when at least 1.1 million b/d of Russian crude that has continued to flow to Europe must be replaced.

“With Urals disappearing from Primorsk, Johan Sverdrup is the first option available,” said a trader at a refinery in southern Europe. “It is an alternative, but we have not been able to buy a cargo so far. So it’s not one of the alternatives for us.”

Changes in Europe’s crude diet are inevitable and some of them could be dramatic. But even at this late stage of the game, it’s unclear which grades will benefit most.

Lackluster buying interest for certain alternatives to Urals has left some market participants puzzled by the lack of a sense of urgency.

Kazakh and Mideast Crude

Kazakhstan’s CPC Blend, for example, is a light, sour crude that should theoretically be seeing stronger demand.

Instead, prices for CPC have come under heavy pressure recently, mainly due to an expected rise in December loadings.

The Kazakh crude oil transits Russia on its way to the CPC marine terminal on Russia’s Black Sea coast and there is a risk that it could be blended with Russian crude, making some potential buyers wary of unwittingly breaching the EU ban.

Meanwhile, Mideast producers of medium and heavy sour crudes are eyeing the opportunity in Europe to replace Russian oil, which has already been eroding their market share in Asia.

Saudi Arabia and Iraq are both pushing more crude west of Suez and betting on stronger demand there going forward.

They recently raised their official formula prices for Europe-bound cargoes loaded in December — the first to arrive after the EU ban — by up to $1/bbl in Iraq’s case, while lowering their prices for sales to Asia.

India has become the top destination for heavily discounted Russian crude shunned by Europe, and Russia looks set to surpass Iraq and Saudi Arabia as India’s main supplier.

“The Iraqis are more than happy to sell more barrels west because obviously they are losing some clients,” says the southern European trader. “We increased the contract several months ago and I am sure that if we asked for more, we can get more.”

Brazil and Angola

Two likely beneficiaries of the disruption of Russian crude flows to Europe are Angola and Brazil, which both produce medium, sweet crude that refiners can blend and run as replacements for Urals.

Brazil’s trans-Atlantic exports have surged this year, with grades like Buzios and Iracema regularly heading to Europe.

But some sellers of Brazilian crude have not found the strong European demand for December-loading cargoes that they had expected.

And Angolan offers have come down sharply, traders say, from premiums to dated Brent of $1/bbl for Dalia to discounts to the North Sea benchmark.

“Everyone is leaving their purchases to the very last minute,” says another trader with a European refinery.

“With the big Russia ban as of Dec. 5, we should have seen a race to take these Angolan grades, to take Johan Sverdrup, to take everything, to cover this demand. But strangely enough, that hasn’t happened.”

Weak Chinese demand — in particular for Angolan crude — appears to be a key factor in this, offsetting stronger demand in Europe.

Another big problem for sellers — even if it is one that should go away after Dec. 5 — is the simple fact that the big discounts offered for Russian crude make it by far the most competitive option for those still prepared to buy it.

“Technically it’s very easy to replace Urals,” says the trader. “What is not easy is to replace something that costs X minus $20 [to dated Brent] with something that costs X.”

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