Page 6 - LatAmOil Week 20 2022

LatAmOil COMMENTARY LatAmOil

Downstream impact

NewsBase examines some of the economic and political fallout from the

Russia-Ukraine war, with a focus on regional markets for jet fuel and diesel

RUSSIA’S policy toward Ukraine has had a crude markets is delicate enough, with commer-
huge impact on world oil markets over the last cial inventories being low enough, that even a
WHAT: six months. Prices began moving upward late small disruption can make a very big contribu-
The reduction in Russian last year as Russian troops began gathering at tion to price volatility.
oil flows to world markets Ukraine’s border, and they have shot upward It’s important to note, though, that this vola-
has affected jet fuel and since the outbreak of war on February 24. tility isn’t confined to crude oil markets. Global
diesel prices, as well as This unprovoked invasion of a neighbouring petroleum product markets are inevitably feel-
crude prices. country has led a number of Western countries ing the impact of recent events too. However,
to impose restrictions on the importation of middle distillates (diesel and jet fuel) have been
WHY: Russian oil, in an attempt to deprive the Kremlin affected even more significantly than crude oil.
Middle distillate prices of one of its most important sources of hard cur- For example, data from oilprice.com show that
seem to be under even rency. It has also led a number of private-sector US heating oil futures climbed by about 55.3%
more pressure than
crude prices, and this organisations to spurn transactions involving between the beginning of the year and May 18,
pressure is evident in Russian crude, partly to avoid sanctions pen- while WTI crude future went up by around
multiple regions. alties in some jurisdictions and partly to avoid 45.1% over the same period.
being seen as willing to do business in a country And these numbers from the US market are
WHAT NEXT: with such an unsavoury reputation. not outliers. All around the world, middle dis-
The EU’s planned embar- These moves, in turn, have cut the volume of tillate markets are in turmoil, with significant
go on Russian oil imports Russian oil available on world markets. More- consequences for the regional economic and
has the potential to lead over, they have disrupted trade flows, forcing political scenes. This article offers a brief look at
to further disruptions in Russian producers and traders to divert large some of these consequences.
trade flows. volumes of crude away from their usual destina-
tions in Europe to Asia or to take extraordinary Europe
measures to conceal the origin of their cargoes. Prices for diesel and jet fuel have skyrocketed in
These cuts and disruptions have not brought Europe this year, owing to a seemingly perfect
Russian crude oil and gas condensate exports – storm of factors. Jet fuel was end-priced at 120%
which averaged 4.7mn barrels per day (bpd) in higher in the week ending May 13 than a year
2021, according to the US Energy Information earlier, while diesel was trading at more than
Administration – down to zero, but they have double the price.
reduced them. The extent of the disruption Western sanctions against Russia have led
probably amounts to no more than a few per- to supply disruptions, as exporters have had
cent of global liquids consumption, which the difficulty completing transactions. Meanwhile,
EIA has estimated at 97.4mn bpd in April 2022. some buyers have been shunning Russian petro-
However, the supply/demand balance on world leum products to avoid reputational damage.

Prices for oil have remained relatively stable compared to other energy sources (Saudi Arabia Ministry of Energy)

P6 www. NEWSBASE .com Week 20 19•May•2022