Will U.S. Refiners Boycott Russian Oil?

1. Asia to Remain Focus of Middle Eastern Producers as Europe Tightens Further

- Despite IEA members agreeing to release 60 million barrels of oil in a coordinated effort to tame runaway prices, with the US releasing half of the total, Brent is up at $110 per barrel, an eight-year high.

- The risk of Russian supply being kept away from markets has made backwardation so steep that now the difference between the first and second months of the Brent futures curve stands at around $5 per barrel.

- Concurrently, the Brent-Dubai EFS spread, a key indicator of arbitrage flows from the Atlantic Basin into Asia, rose to almost $14 per barrel, the highest it has ever been.

- With a historically weak arbitrage, flows from the Atlantic Basin (including the US) have been declining for four straight months and averaged 2.1 million b/d, the lowest since 2016.

2. Can US Refiners Boycott Russian Oil?

- Two US refiners, namely Monroe Energy and Par Pacific, have decided not to enter into any new supply deals seeing imports of Russian crude, squeezing the market for Urals and ESPO outflows.

- The largest buyers of Russian barrels last year, Valero and Marathon, have so far refrained from any comments – nationwide, last year has seen an average of 130,000 b/d Russian crude going to the US.

- Russian products are much more important for US refiners, primarily importing high-sulfur fuel oil and vacuum gasoil (VGO), for secondary refining and catalytic cracking, respectively.

- Total US imports of Russian products amounted to almost 400,000 b/d last year, with a little less than half of it coming from steady HSFO demand in the US Gulf Coast.

3. Coal Jumps Where It Really Shouldn’t

- Just as with oil, the prospect of Russia’s coal exports – representing roughly 20% of the world’s total traded volume – pushed coal prices to record highs, significantly worsening the gas-to-coal switching calculus for many emerging economies.

- The European coal benchmark API2 doubled over the course of this week, fortifying coal’s appreciation so far this year, peaking at $436 per metric tonne mid-week, only to shed some 50/mt by Friday.

- Even though Indonesia nominally reversed its month-long export ban, thermal coal exports globally are nowhere near 2021 levels, with February seeing outflows of 62 million tons, 10 million tons lower than in December 2021.

- With Australia’s Newcastle coal futures also appreciating tangibly this week, China’s domestic coal pricing has been the only exception not to see price spikes, presumably on the back of robust domestic production.

4. European Spot Gas Prices Feel the Russian Heat

- European spot gas prices reached an all-time high this week after speculation that EU sanctions against Russia could impact gas deliveries sent shockwaves across the market.

- The Netherlands’ TTF benchmark price peaked at €165 per MWh on Wednesday (equivalent of $60 per mmBtu), only to slide back marginally to €150 per MWh by the end of the week.

- Simultaneously, UK front-month prices soared to record highs amid news that Russia-flagged LNG cargoes are to be diverted away from UK ports, hitting £405 pence per therm.

- Meanwhile, Russia’s pipeline gas giant Gazprom resumed westbound gas exports along the Yamal-Europe gas pipeline and also ramped up outflows via Ukraine, reportedly in line with increased customer requests.

5. Spiking Wheat Prices Put Emerging Economies Under Pressure

- The Russia-Ukraine war is set to put wheat futures on track for the biggest weekly gain over the past 60 years, with the Chicago CBOT wheat futures reaching $11.4 per bushel, their highest since March 2008.

- Ukrainian port closures and difficulties in fixing vessels for Russian exporters resulted in the already-tight wheat market losing 30% of global supplies in one go.

- Australian wheat prices followed suit with APW FOB Kwinana quotes currently trading just a tad below the $400 per metric tonne mark, mostly expected to sail towards China.

- Argentina is mulling to cap domestic wheat prices to temper food inflation, whilst North Africa’s key buyer Egypt has already canceled two buying tenders amid lacking bids.

6. Europe Compelled to Rely on LNG Despite Soaring Price

- Liquefied natural gas continues to trend at historically high levels in Europe, with February seeing the second-highest LNG inflows in history, equivalent to some 30% of the continent’s gas supply.

- Europe continues to attract more cargoes than buyers in Asia-Pacific do, largely thanks to favorable inter-basin price spreads coupled with more profitable freight rates.

- Turkey became the top destination for US LNG cargoes last month, seeing 0.9 million tons of LNG depart across 13 cargoes, concurrently overtaking the United Kingdom and France.

- The reason behind Turkey’s active buying lies in a protracted force majeure situation it had to endure with its Iranian piped gas imports due to technical issues.

7. Russia’s Uranium Industry Too Important to Sanction

- Amidst intensifying calls to place Russia’s oil and gas flows under sanctions, Moscow’s importance in the uranium market seems to have shielded it from similar pressures.

- Russia produces more than one-third of the world’s enriched uranium for reactors, almost six times as much as the United States which has grown to import fuel from Russia’s Rosatom.

- The US nuclear power industry is lobbying the White House not to sanctions Russian uranium imports as the country relies on Russia, Kazakhstan, and Uzbekistan for half its nuclear fuel.

- With spot prices of uranium currently assessed around 45 per pound (and termed supplies being generally cheaper), US households take 20% of generated electricity from nuclear plants.