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2021-04-19 16:45:00

RUSSIAN OIL FOR U.S. 8%

RUSSIAN OIL FOR U.S. 8%

PLATTS - 16 Apr 2021 - Russian and US relations have turned frosty again after a new round of US sanctions but when it comes to Moscow's oil, US refiners are more dependent on it than ever.

Imports of Russian oil, which consists mainly of fuel oil feedstocks and some crude, recently reached a 10-year high as US refineries continue to ramp up runs as the economy starts to recover from COVID-19.

Russian oil imports as a share of US total oil imports hit a record high of 8% in January 2021, according to data from the US Energy Information Administration, up from 4% during 2018.

Mark Finley, a fellow in energy and global oil at Rice University's Baker Institute, said this dynamic is "clearly market driven" and shows how "the interconnectivity of oil markets" can take place even outside of a political context.

"What is interesting is that the rise in Russian imports predates COVID-19 and, in fact, the rise in flows coordinates perfectly with the imposition of US sanctions on Venezuela in 2019," he said.

Prior to the sanctions, US refiners were particularly reliant on heavy and sour Venezuelan crude, which in some cases is quite similar to Russian medium sour oil.

The import trend has gathered pace even as ties between the world's two largest producers have worsened in recent months.

On April 15, the White House issued an executive order imposing sanctions aimed at "targeting aggressive and harmful activities by the Government of the Russian Federation." The sanctions targeting Russian entities and individuals could have knock-on effects on the energy space while not specifically targeting the sector.

Deprived of Venezuela oil

US imports of Russian crude and petroleum products were at their highest level in almost a decade last year, and a similar pattern is playing out in 2021.

In January, the US imported 648,000 b/d of Russian crude and products, the highest monthly volume from its rival producer since June 2012, EIA data shows.

US imports of Russian oil averaged 538,000 b/d in 2020 from 520,000 b/d in 2019 and their highest since 2011 when they averaged 624,000 b/d, according to the EIA. Demand for Russian crudes such as Urals and Varandey have also picked up in recent months.

Total Russian oil imports are even higher than flows from key ally Saudi Arabia. The EIA data shows the US has imported more oil from Russia than Saudi for at least six consecutive months to January 2021.

"It looks and feels to me that this is a pull by US refiners looking to replace some of its heavy oil supplies that were lost by other sources," Finely said.

"This is not a strategic push by Russia as such, it is purely an economical and market-driven trend," he added.

The bulk of these flows have been delivered to ExxonMobil's 560,500 b/d Baytown plant, Valero's 335,000 b/d Port Arthur and 340,000 b/d St. Charles facilities, and Chevron's 356,400 b/d Pascagoula and 269,000 b/d El Segundo refineries, according to data from S&P Global Platts trade flow software cFlow.

A lot of these refineries have been deprived of access to Venezuelan crude by US sanctions and have turned to Russia to meet some of their requirements.

Need for feedstocks

The bulk of this oil is classified by the EIA as unfinished oils. Sources told Platts that these products consist of different types of fuel and their various feedstocks.

These include high sulfur fuel oil, high sulfur vacuum gasoil, low sulfur vacuum gasoil, high sulfur straight run fuel oil and low sulfur straight run fuel oil.

Russian refineries are major producers and exporters of such fuel oil products. These feedstocks are crucial for processing in the secondary units of complex refineries.

US demand for HSFO has also risen sharply as the lack of Venezuelan crude has encouraged some refineries to blend the fuel oil with light sweet crudes as an alternative feedstock. Complex US refiners also use Russian HSFO and HSSR in coking units, trading sources said.

Average US vacuum gasoil imports from Russia in 2020 were 125,000 b/d compared with 110,000 b/d in 2019, according to Platts Analytics.

"VGO volumes are more significant and potentially more difficult to replace," said Lenny Rodriguez, who covers products arbitrage and Latin America for Platts Analytics.

"Average fuel oil imports over the last few years have been around 20,000-35,000 b/d," he said. "If those imports were to stop, other locations such as Latin America, the Middle East. and possibly Northwest Europe would likely be ready to cover the gap."

LSVGO is used by a fluid catalytic cracker to make more gasoline while HSVGO is processed in a hydrocracker to make more diesel. US plants are key exporters of diesel to the global markets while the US is a major consumer of gasoline. As US refinery utilization rates have picked up, their demand for such products has also grown, trading sources said.

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Tags: RUSSIA, USA, OIL, SANCTIONS