Ukrainian drone attacks on Russian refineries have taken out as much as 600,000 barrels in daily processing capacity, according to commodity trading major Gunvor.
"It is significant because obviously this is gonna hit the distillate exports straight away," Gunvor chief executive Torbjörn Törnqvist told Bloomberg on the sidelines of CERAWeek.
"So that will probably take down exports by a couple of hundred thousand barrels, so to me it's a distillate problem," the executive added.
Per Bloomberg, however, JP Morgan estimates Russia's refining capacity losses are significantly higher than Gunvor, at 900,000 bpd. This would add a hefty risk premium to middle distillate prices because it would take weeks if not months to restore that capacity, the report noted. The bank's analysts have estimated that risk premium at $4 per barrel.
The Ukraine has carried out a string of refinery attacks using drones in the past few weeks, damaging several processing facilities in different Russian regions.
These have resulted in lower refining capacity for the second quarter, and will combine with seasonal refinery maintenance to reduce fuel output in the world's largest fuel exporter. This could be one of the reasons why Russia said it would focus on cuts to oil production instead of exports in its voluntary supply reduction as part of OPEC+ in the second quarter, analysts say.
Russia said at the last OPEC+ meeting it would reduce crude oil production by 350,000 bpd in April, while export cuts would amount to a more modest 121,000 barrels daily. The month after, the ratio between oil production and export cuts would increase further, with crude output cuts planned at 400,000 bpd and export cuts set at 71,000 bpd.
Russia is short on oil storage capacity, so it would be easier for it to cut crude oil production than juggle with exports.
By Charles Kennedy for Oilprice.com
Charles is a writer for Oilprice.com More