Page 6 - AsianOil Week 20 2022

AsianOil COMMENTARY AsianOil

Downstream impact

NewsBase takes a brief look at some of the economic
and political fallout from the Russia-Ukraine war,

with a focus on regional markets for jet fuel and

diesel around the world

PERFORMANCE RUSSIA’S policy toward Ukraine has had a And these numbers from the US market are
huge impact on world oil markets over the last not outliers. All around the world, middle dis-
WHAT: six months. Prices began moving upward late tillate markets are in turmoil, with significant
The reduction in Russian last year as Russian troops began gathering at consequences for the regional economic and
oil flows to world markets Ukraine’s border, and they have shot upward political scenes. This article offers a brief look at
has affected jet fuel and since the outbreak of war on February 24. some of these consequences.
diesel prices, as well as This unprovoked invasion of a neighbouring
crude prices. country has led a number of Western countries Europe
to impose restrictions on the importation of Prices for diesel and jet fuel have skyrocketed in
WHY: Russian oil, in an attempt to deprive the Kremlin Europe this year, owing to a seemingly perfect
Middle distillate prices of one of its most important sources of hard cur- storm of factors. Jet fuel was end-priced at 120%
seem to be under even rency. It has also led a number of private-sector higher in the week ending May 13 than a year
more pressure than organisations to spurn transactions involving earlier, while diesel was trading at more than
crude prices, and this Russian crude, partly to avoid sanctions pen- double the price.
pressure is evident in alties in some jurisdictions and partly to avoid Western sanctions against Russia have led to
multiple regions. being seen as willing to do business in a country supply disruptions, as exporters have had dif-
with such an unsavoury reputation. ficulty completing transactions. Meanwhile,
WHAT NEXT: These moves, in turn, have cut the volume of some buyers have been shunning Russian
The EU’s planned Russian oil available on world markets. More- petroleum products to avoid reputational dam-
embargo on Russian oil over, they have disrupted trade flows, forcing age. As Europe takes far more Russian diesel, jet
imports has the potential Russian producers and traders to divert large fuel and other refined products than any other
to lead to further volumes of crude away from their usual des- market, it is here that the impact has been most
disruptions in trade tinations in Europe to Asia or to take extraor- acute.
flows. dinary measures to conceal the origin of their Higher crude prices, also partly tied to Rus-
cargoes. sian supply fears, have also fed into higher fuel
These cuts and disruptions have not brought prices. Other factors include robust seasonal
Russian crude oil and gas condensate exports – demand, low stocks and a lack of local supply.
which averaged 4.7mn barrels per day (bpd) in While diesel prices have climbed higher,
2021, according to the US Energy Information jet fuel is now the most lucrative petroleum Even a small
Administration – down to zero, but they have product to produce in Europe, with the phys-
reduced them. The extent of the disruption ical crack spread soaring to a record $69.4 per disruption can
probably amounts to no more than a few per- barrel on April 29. Cracks have seen more than make a very big
cent of global liquids consumption, which the a 10-fold increase compared with averages in
EIA has estimated at 97.4mn bpd in April 2022. 2020 and 2021, when demand for the product contribution to
However, the supply/demand balance on world nose-dived as a result of the pandemic. This
crude markets is delicate enough, with commer- tightness in the jet fuel market may be great price volatility.
cial inventories being low enough, that even a news for refiners, but it could result in a supply
small disruption can make a very big contribu- crisis if the post-pandemic recovery in demand
tion to price volatility. continues gaining pace.
It’s important to note, though, that this vola- If implemented, the EU’s embargo of Russian
tility isn’t confined to crude oil markets. Global oil and petroleum products will place unprece-
petroleum product markets are inevitably feel- dented pressure on the European fuel market.
ing the impact of recent events too. However, In the event of a blanket ban, the markets worst
middle distillates (diesel and jet fuel) have been affected will be those heavily dependent on Rus-
affected even more significantly than crude oil. sian crude such as Hungary, which would have
For example, data from oilprice.com show that to upgrade its refineries extensively and estab-
US heating oil futures climbed by about 55.3% lish new infrastructure to receive alternatives to
between the beginning of the year and May 18, Russian feedstock. But those same countries are
while WTI crude future went up by around likely to be permitted more time to phase out
45.1% over the same period. Russian imports.

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