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UPDATED 1 Sept: The EI library in London is temporarily closed to the public, as a precautionary measure in light of the ongoing COVID-19 situation. The Knowledge Service will still be answering email queries via email , or via live chats during working hours (09:15-17:00 GMT). Our e-library is always open for members here: eLibrary , for full-text access to over 200 e-books and millions of articles. Thank you for your patience.
Japan shies away from ESPO Blend
Rising exports and concerns over Russian energy sector sanctions have pushed ESPO Blend crude to its lowest against the Dubai benchmark in over three years, according to Argus Global Markets. Cargoes of light sweet ESPO Blend have traded just $1.30/b above Dubai assessments, the lowest since late 2010 (see Figure 1). Japanese refiners have avoided taking part in tenders to sell the grade issued by state-controlled Rosneft because of concerns over US sanctions on the Russian energy sector.
Japan is the biggest importer of ESPO Blend and its withdrawal is likely to further depress a market that is already feeling the impact of rising exports (see Figure 2). Loadings from Russia’s Pacific port of Kozmino have risen by nearly 60,000 b/d over the last few months, in part because Rosneft shut its 130,000 b/d Achinsk refinery after a fire in mid-June.
Loadings could rise by another 90,000 b/d in September. A record 25 cargoes, or nearly 620,000 b/d, are scheduled to load from Kozmino after producers Rosneft, Gazpromneft and Lukoil were allocated an extra cargo each. The surge is likely to be temporary while Achinsk is shut. Rosneft initially said the refinery would stay closed until November, although it was thought likely to partially restart in late August. Extra cargoes in August and September are also related to a crude-for-products swap deal between Russia and Kazakhstan. Pipeline operator Transneft allowed more Kozmino exports to assuage Russian firms that had been reluctant to take more Kazakh crude.
ESPO Blend exports from Kozmino are still likely to be higher in the fourth quarter than in the first half of this year, even without additional volumes freed up by the Achinsk closure. Russian crude production has increased, and Kozmino is expected to sustain around 22 cargo loadings a month, or 535,000 b/d, from October onwards, compared with just under 480,000 b/d in January–June.
Higher exports and lower values against Dubai could attract more interest from trading firms to buy ESPO Blend from Russian producers for resale on the spot market. Norway’s Statoil, Lukoil and trading firm Mercuria bought cargoes from Russian producers in September to supply refiners. Shell and China’s Unipec have taken up the slack left by Japanese firms and have bought most of the September cargoes in Rosneft’s recent tenders. Japanese refiners have bought just 120,000 b/d in direct purchases from other Russian firms for September, down from 230,000 b/d in July–August. They may buy more in the spot market. US demand for ESPO Blend has also re-emerged after an eight-month break. Independent refiner Tesoro loaded a cargo in July.
