oil output Vitol
Vitol Group, the largest independent oil trader, has announced its intention to stop buying Russian oil by the end of 2022. According to the company’s statement, already in the second quarter the volumes of oil processed by Vitol from Russia will decrease significantly. Similar scenarios are voiced by the Swiss-Dutch raw materials company, despite the fact that the EU does not have an oil embargo against Moscow.
If Vitol’s oil move can still be explained by a sharp deterioration in political and economic relations between the EU and Russia, then the behavior of Indian Oil Corporation, one of the leading players in the Moscow-friendly Indian oil market, seems rather strange. The opposing side’s refusal to buy the Russian-grade Urals at an appropriate discount to Brent seems much more symbolic against the background of US efforts to persuade New Delhi to buy energy from Moscow.
However, Sergey Kondratyev, a senior expert at the Institute of Energy and Finance, emphasized in an interview with socialbites.ca that the cases of Vitol and the Indian Oil Company are actually very different. At the same time, both European and Indian companies will not risk completely abandoning Russian raw materials, despite its “toxicity”, in his opinion.
“The story of the Indian Oil Company’s refusal to buy the Russian Urals is by no means a trend, but an isolated case. Also, other varieties fell under distribution, including Das, Eugene Island, Thunder Horse. Local refineries needed low sulfur oil. From the outside, India’s refusal looks like a political gesture, but in reality everything is much more mundane, ”the analyst suggested.
Vitol’s share in Russia’s oil exports
Until recently, the Swiss-Dutch commodity giant had a significant share in the Russian oil market. However, Alexander Frolov, Deputy Director General of the National Energy Institute, said that Vitol’s annual purchases are 10 times less than Moscow’s trade with Chinese counterparties.
“Vitol is one of the twenty largest buyers of Russian oil. The European raw material giant bought 3.5-5 million tons from Moscow every year. For comparison, the two largest oil companies in China buy about 50 million tons from us,” he said.
He added that it is unlikely that European company Vitol, which has not given up its stake in Vostok Oil, the world’s largest oil project, will give up on multi-million-dollar trade with Russia despite the pressure of Western sanctions.
“Vitol’s commodity trade with Russia is based on long-term contracts. In other words, the purchase of the vast majority of oil will continue after 2022. Even if the EU imposes an oil embargo on the sixth package of sanctions, Vitol could repeat Shell’s trick with “Latvian” oil,” the analyst said.
Frolov said the British energy company had previously been caught mixing Russian Urals with Latvian grades and transferred the resulting mix to European. However, it is a fact that Shell continues to buy Russian oil despite all its “terrible” statements about leaving the Russian market.
“The only loss for the Russian budget will be Vitol’s refusal to buy and sell raw materials from Moscow. We can talk about contingent millions of dollars. However, the main share of revenue from long-term contracts will continue to go to the treasury.”
How can Russia keep its oil customers?
Against the background of possible oil restrictions that could be included in the sixth EU sanctions package against Russia, the only real opportunity for Moscow to maintain high demand for the Ural brand will be to increase the discount on it. Kondratiev suggested that the discount could increase by tens of percent as the Western sanctions pressure on Moscow intensifies.
“The Urals are already offered to foreign counterparties at a discount of almost $ 35 to Brent. The discount to the Indian basket, which is a mix of local varieties, is more than $30 per barrel. “For New Delhi, Russian oil will remain a priority in any case in the medium term.”
However, he added that if the EU decides to impose severe restrictions on oil trade with Russia, up to an embargo, our companies will have to increase the discount even further. This measure will help India and China maintain their key positions in Russian oil exports.
“When to exchange nail The Urals are $70 and Brent prices are over $100 Russian budget, of course, loses millions of dollars compared to our usual discounts to 1-2$ per barrel in the North Sea. “But in the current scenario, Russia can make up for losses by sharply increasing the volume of oil exports to Asia,” he said.
According to him, in the event of a European embargo on oil trade with Russia, the Ural mark discount could reach the previously unthinkable $40-50 per Brent barrel.
How will this affect Russia’s exports?
Despite the reduction (almost 30%) for the Urals, at the beginning of March 2022, total exports of oil and oil products from Russia decreased by 31.8% – 2.5 million barrels per day.
At the same time, the International Energy Agency (IEA) told Gazeta.ru to the Institute of Energy and Finance, predicting an even greater decline in Russian commodity exports in April – at the level of 3 million barrels per day.
But even given the current negative reputation of Russian oil, Western counterparties may continue to use a certain “openness” to circumvent trade restrictions with Moscow, according to Kondratiev.
“End consumers in Europe can easily find traders other than Vitol who will agree to sell them Russian oil. The same “Lukoil” has a Swiss “daughter” Litasco.
Other large commodity companies may follow a similar path. Kondratiev said that in the eyes of European counterparties, buying oil in this way would be less “toxic” than direct commercial contacts with Moscow.
This method will help to overcome possible sanctions, because raw materials will be purchased in the EU through traders located in the zone of influence of the European jurisdiction. Ultimately, such a trade option will help Moscow partially offset the decline in raw materials exports and remain a major supplier of oil to Europeans, the analyst said.