Russia exported 1.078 million tons of fuel oil to the United States last month, equal to more than 7 million barrels, Reuters has reported, citing data from traders and calculations from Refinitiv Eikon.
The July total was a 16-percent increase on June as U.S. refiners had to replace lost barrels of Venezuelan heavy oil following U.S. sanctions on Caracas. Many refiners have had to resort to using fuel oil instead of heavy crude because of these sanctions as the by-product of oil refining can replace heavy crude in refineries that cannot operate without it.
In fact, the Venezuelan sanctions, along with OPEC+ production cuts, have created a serious shortage of heavy crude on the market, leading to higher prices—in some cases prohibitively high—and the closure of some refineries.
The shortage was in part triggered by the seasonal jump in consumption of the heavy oil derivative: in the Middle East, imports of high-sulfur fuel oil rise during the summer months because it is used for electricity generation and demand for electricity rises during the hottest season of the year. At the same time, India was buying more high-sulfur fuel oil, too, with imports from January to July three times higher than imports for the same period of last year.
Now that OPEC+ has begun to relax its production cuts, more heavy crude would be coming into markets, so the deficit should shrink from half a million barrels daily in July to some 100,000 bpd by the end of the year.
Yet Russian fuel oil exports to the United States have been rising even before the current crisis began. Last year, Russia exported 11 million tons of fuel oil to the United States, Reuters noted in its report, which was twice as much as it exported in 2018, as refiners were attracted to the low price of the feedstock combined with low freight rates.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com