Page 4 - DMEA Week 20 2022

DMEA COMMENTARY DMEA

Ukrainian conflict takes

its toll downstream

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.

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

P4 www. NEWSBASE .com Week 20 19•May•2022