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Russia seeks new fuel markets in Africa, Middle East as Europe turns away

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© Reuters. FILE PHOTO: Model of petrol pump is seen in front of EU and Russian flag colors in this illustration taken March 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

MOSCOW (Reuters) – Russia is increasing gasoline and naphtha supplies to Africa and the Middle East as it struggles to sell fuel in Europe, while Asia is already taking bigger volumes of Russian crude, Refinitiv Eikon data showed and sources said.

    The development is likely to increase competition for Asian customers between Russia and other big fuel exporters – Saudi Arabia and the United States  – which are the top three suppliers to Asia.    

    The European Union has slowly reduced imports of Russian crude and fuel since March and agreed a full embargo that will take effect by end-2022.  

    Asian buyers have stepped in to rapidly increase purchases of Russian crude, even though Asia is not a natural market for Russian fuel because Asia refines more oil than it needs and is a net fuel exporter.

    That makes finding new outlets such as Africa and the Middle East paramount for Russia to protect its global market share and avert a deeper decline in oil exports and output.

“Africa and the Middle East seem to be main options for Russian oil product suppliers, so we expect more shipments there in the second half of the year as EU embargo gets closer”, a trader involved in Russian oil product trading told Reuters.

    Russia exported more than 2.5 million barrels per day (bpd) of crude and some 2 million bpd of fuel to Europe before sanctions on the Russian financial sector, which has made trade much more difficult.

    Russian oil companies have recently increased supplies of gasoline and naphtha to Africa and the Middle East from the Baltics, traders said. Before sanctions, most Russian supply to the regions came from the Black Sea ports.

    At least five cargoes carrying about 230,000 tonnes of gasoline and naphtha were supplied in May-June from the Baltic port of Ust-Luga to Oman and to the UAE oil hub of Fujairah, based on Refinitiv data.

    In total, naphtha and gasoline supplies from Russian ports to Oman and UAE have totalled nearly 550,000 tonnes this year compared with zero in the whole 2021, data showed.

    Nigeria and Morocco have been major destinations in Africa for Russian gasoline and naphtha in recent months, Refinitiv Eikon data showed and traders said, while several cargoes also were supplied to Senegal, Sudan, Ivory Coast and Togo.

    Overall monthly supply of Russian gasoline and naphtha to the region was at about 200,000 tonnes during recent months, including volumes shipped from storage in Latvian and Estonian ports, Refinitiv Eikon data showed.

    Russian diesel shipments to African countries have reached 1 million tonnes since the beginning of the year, up from 0.8 million tonnes in January-June 2021, with Senegal and Togo as top destinations, Refinitiv data and Reuters calculations showed.

    In May, Russian fuel oil arrivals in the UAE oil hub of Fujairah also jumped sharply.

    Despite higher shipping costs, supplying Russian oil products to Africa and the Middle East helps trading firms to preserve margins as options to resell oil products in Europe have been limited due to sanctions, traders said.

    “Sohar (in Oman) and Fujairah (in UAE) could offer storage and blending capacities for all these barrels, while European ports have started to refuse Russian oil products”, a market source involved in Russian oil product trading said.

    DOMESTIC MARKET UPHEAVAL

The change in Russia’s export markets has resulted in an unprecedented disparity in Russia’s domestic market. Summer grade diesel is currently traded at prices 30-40% higher than gasoline, based on Reuters data. Gasoline is normally at a premium to diesel.

    Previously Russia exported gasoline and naphtha to European trading hubs, but has had to look to Africa and the Middle East amid weak demand in Europe, traders said.

As a result, domestic prices for these products in Russia have collapsed because of plentiful supply.

    Russian gasoline traded $250-300 per tonne below non-sanctioned European product, which was most recently assessed at around $1,330 per tonne on FOB basis.

    Diesel cargoes were discounted much less – about $40-50 per tonne below non-sanctioned European product – because there is still strong demand, traders said.

Commodities

Oil up 2% on Bets G7 Move Versus Russia Will Further Tighten Supply 

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© Reuters.

By Barani Krishnan

Investing.com — Crude markets rallied on Monday on speculation that the predominantly-Western Group of Seven (G7) nations might further tighten the flow of oil to their shores in a move to abandon Russian supplies.

Russia, meanwhile, staged its biggest attack in months on Ukrainian civilians, reportedly killing as many as 1,000 of them after firing rockets at a mall in Kremenchuk. 

The prospect of oil being further constricted into the West loomed as leaders of the G7 — made up of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — discussed at their meeting in Bavaria, Germany, ways to cut Russia’s ability to fund its war in Ukraine. US President Joe Biden is to meet Germany’s Chancellor Olaf Scholz, France’s President Emmanuel Macron and UK’s Prime Minister Boris Johnson on June 28th on the margins of the G7 summit.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled up $1.95, or 1.8%, at $109.57 per barrel.

London-traded Brent crude, the global benchmark for oil, settled up $1.97, or 1.7%, at $115.09.

“There are numerous geopolitical chess pieces being moved around the board that are supporting oil, though the play could shift the other way any moment,” said John Kilduff, partner at New York energy hedge fund Again Capital.

Members of the Organization of the Petroleum Exporting Countries and their allies including Russia, known as OPEC+, will put out 50% more oil in July than in June. 

But the 23-nation alliance, led by Saudi Arabia and supported by Russia, also trimmed its projected 2022 oil market surplus to 1 million barrels per day from a previous estimate of 1.4 million, according to an internal report seen by Reuters.

Crude prices were down earlier in the day on reports that G7 was also discussing prospects of reviving stalled nuclear talks with Iran in an effort to find a workaround to the crisis caused by the sanctions on Russian oil.

Some investors in oil also appeared hesitant to put on major positions after the U.S. Energy Information Administration said its weekly inventory report will be delayed for a second straight week due to server issues.

The EIA’s globally-followed Weekly Petroleum Status Report missed publication on June 24 and will not be released again as slated on June 29. The agency, however, said all its data was intact and it will resume publication “as soon as possible.”

The EIA however reported separately that it released 6.9 million barrels of crude from the U.S. Strategic Petroleum Reserve last week as it relied on the emergency reserve to bridge the supply tightness that has sent domestic gasoline prices to all-time highs above $5 per gallon. 

The latest release pushed the SPR inventory level below the 500 million barrel mark for the first time since 1986, Bloomberg reported.

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Commodities

Brazil’s Petrobras elects new CEO as fuel price pressures mount

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© Reuters. FILE PHOTO: Gasoline and diesel prices are displayed near a gas station, following the announcement of updated fuel prices, at the Brazilian oil company Petrobras in Brasilia, Brazil June 18, 2022. REUTERS/Ueslei Marcelino/File Photo

By Rodrigo Viga Gaier and Rafaella Barros

RIO DE JANEIRO (Reuters) – The board of directors of Brazil’s Petrobras elected Caio Paes de Andrade as its new chief executive on Monday, as a messy management transition at the state-run oil company inches toward conclusion.

Andrade, a former economy ministry official, was also voted onto the company’s board ahead of his election as CEO, the company said in a securities filing, a move required under Petrobras bylaws.

Andrade had been tapped by Brazilian President Jair Bolsonaro last month to run the firm and is set to replace Chief Exploration and Production Officer Fernando Borges, who took over as interim CEO after Jose Mauro Coelho resigned earlier this month.

Coelho, as well as his two predecessors, were brought down after clashes with Bolsonaro over the company’s fuel pricing policy. The far-right president’s popularity has taken a beating due to rising diesel and gasoline prices and high inflation.

Of particular interest to investors will be any potential changes to the company’s current policy of partially pegging domestic fuel prices to international rates.

The incoming CEO told a corporate committee last week that he had not received any guidance from the government regarding changing the firm’s pricing policy.

In an interview late on Sunday, however, Bolsonaro said that Andrade had agreed with Mines and Energy Minister Adolfo Sachsida to run a “quick x-ray of Petrobras and reveal exactly what the PPI (import parity price) is.”

“He will tell if fuel prices need to be readjusted immediately or if there is a grace period,” Bolsonaro said.

Reuters reported earlier, citing sources, that the board had approved Andrade’s nomination in a 7-3 vote.

In the Monday filing, the company said his term will last until April 13, 2023.

Brazil-listed preferred shares in Petrobras were frozen before the announcement. They had gained 5.82% in intraday trade, after analysts at Itau BBA resumed coverage of the company with an “outperform” rating.

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Commodities

Oil prices rise amid G7 talks on new Russian sanctions

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© Reuters. FILE PHOTO: Crude oil storage tanks are seen at the Kinder Morgan terminal in Sherwood Park, near Edmonton, Alberta, Canada November 14, 2016. REUTERS/Chris Helgren

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices traded higher on Monday in a volatile session as investors waited for any moves against Russian oil and gas exports that might come out of a meeting of leaders of the Group of Seven (G7) nations in Germany.

Brent crude futures rose $1.73, or 1.5%, to $114.82 a barrel by 12:25 p.m. ET (1725 GMT), while U.S. West Texas Intermediate crude was up $1.71, or 1.5%, at $109.25 a barrel.

The prospect of even tighter supplies loomed over the market as western governments sought ways to cut Russia’s ability to fund its war in Ukraine, even though G7 leaders were also expected to discuss a revival of the Iran nuclear deal, which might lead to more oil exports from the OPEC member. ()

The club of wealthy nations on Monday vowed to stand with Ukraine “for as long as it takes”, promising to tighten the squeeze on Russia’s finances with new sanctions that include a proposal to cap the price of Russian oil.

“I think if they were to implement a price cap on sale and purchase of Russian oil, it’s difficult for me to imagine how this is going to be implemented, especially when China and India have become Russia’s biggest customers,” said Houston-based oil consultant Andrew Lipow.

Commonwealth Bank of Australia (OTC:CMWAY) analyst Vivek Dhar noted that there was “nothing stopping Russia from banning oil and refined product exports to G7 economies in response to a price cap, exacerbating shortage conditions in global oil and refined product markets.”

Both crude benchmarks closed down for the second week in a row on Friday as interest rate hikes in key economies strengthened the dollar and fanned fears of a global recession.

Recession and interest rate hike fears have caused volatility and risk aversion in the futures markets, with some energy investors and trader paring back, while prices in the spot crude market has remained strong on high demand and a supply crunch.

But for now, pressing supply worries outweighed growing concerns.

Members of the Organization of the Petroleum Exporting Countries and their allies including Russia, known as OPEC+, will likely stick to a plan for accelerated oil output increases in August when they meet on Thursday, sources said.

The producer group also trimmed its projected 2022 oil market surplus to 1 million barrels per day (bpd), down from 1.4 million bpd previously, a report seen by Reuters showed.

OPEC member Libya said on Monday it might have to halt exports in the Gulf of Sirte area within 72 hours amid unrest that has restricted production.

Adding to the supply woes, Ecuador also said it could suspend oil production completely within 48 hours amid anti-government protests in which at least six people have died.

Traders also awaited news on when market-moving U.S. government oil inventory and other data would be published after it was not released last week due to server issues.

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