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Bullish Sentiment Has Taken Hold of Oil Markets

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Russia Can’t Raise Oil Supply To Asia To Offset Iranian Loss

Russia may be pumping oil at close or above post-Soviet high levels, but because of transportation constraints, it can’t significantly increase its oil supply to Asia, where the loss of Iranian oil exports is already being felt, Russian deputy energy minister Pavel Sorokin told S&P Global Platts on Monday.

Russia’s infrastructure for sending crude oil to its premium Asian market is maxed out, Sorokin told Platts in an interview, but noted that Russia could be seeking to supply more of its Urals crude to Europe to fill in the Iranian supply gap that is opening there. Yet, Russia will be looking to supply markets where the economics are the most attractive, Sorokin said.

One market where Russia can’t meaningfully increase supply to (and market share) is Asia, with eastbound oil infrastructure used at its full capacity.

“We have been supplying as much as we can to Asia, as this is a premium market. We’ve always maximized and will maximize volumes flowing there,” Sorokin told S&P Global Platts.

Asian refiners faced with the choice of cutting Iranian oil imports or irritating the U.S. Administration if they continue to do business with Iran have to look to the other OPEC+ allies for supplies to replace Tehran oil supplies, or to the United States.

In Europe, Russia’s Urals is considered to be one of the best replacements for Iranian grades. The price of Urals compared to Brent to which the Urals deliveries are priced off has recently jumped to the highest this year and close to a five-year high, as European refiners were starting to search for alternative grades to replace imports from Iran. This has also prompted Saudi Arabia to raise last month the prices for Europe for its flagship Arab Light crude grade for October.

At the end of September, maintenance season in Russia has led to more Urals barrels ending up on the European market, which has resulted in a weakening Urals price, according to S&P Global Platts data.

By Tsvetana Paraskova for Oilprice.com

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  • Amvet on October 02 2018 said:
    I have never understood the comments that producers had to maintain high production to keep market share. If you can reduce production and then sell all that you produce at a higher price and have more income, how is market share important??
  • Mamdouh G Salameh on October 01 2018 said:
    It is always a sound economic principle for Russia and other oil-producing countries to maximize the return on their finite assets by taking advantage of robust fundamentals of the global oil market as is the case right now.

    However, the assumption that Russia needs to raise its oil production to offset declining Iranian oil exports to Europe is a very faulty assumption because US sanctions against Iran are doomed to fail miserably and Iran will not lose a single barrel from its oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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