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Three buyers of Russian crude oil have been unable to open letters of credit from Western banks to cover their purchases, four Reuters trading sources said on Thursday following the Russian attack on Ukraine.
Banks are understandably hesitant to extend credit for purchases of Russian crude, given the current situation between Russia, Ukraine, and the West.
A letter of credit is a letter issued by banks that guarantees a buyer’s payment to a seller will be received on time and for the correct amount. However, banks may find such a definitive guarantee hard to stand by after Russia arrived in Ukraine cities by land and sea early on Thursday morning in what Russian President Vladimir Putin referred to as a “special military operation.”
Missile fire was reported near the city of Kiyv, and Russia has landed in port cities such as Odesa. Crude oil prices have shot up as a result, with Brent crude spiking to more than $104 per barrel.
So who is trying to purchase Russian crude oil? Buyers of Russian oil include Big Oil companies such as BP, Chevron, Exxon, Shell, and TotalEnergies, to name just a few. Trading houses, including Trafigura and Vitol, also purchase Russian crude oil.
Vitol also trades with Russian mining companies, according to Vitol’s website.
The anonymous Reuters sources have not disclosed which banks refused to offer letters of credit for the Russian crude oil, but any halt in the flow of Russian crude oil, which exports 7.5 million barrels of crude oil and crude oil products per day, including to the United States.
In November of last year, 17 .8 million barrels of Russian crude oil and petroleum products made their way to the United States.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.