Total finally offloads tainted Russian oil shipment

By Sherry Su, Olivia Konotey-Ahulu and Alex Longley on 10/31/2019

LONDON (Bloomberg) - A cargo of contaminated Russian oil was sold at a discount of more than $25/bbl to benchmark crude prices, six months after the consignment first got loaded onto a tanker.

The 720,000 bbl shipment, currently being stored in Rotterdam, was sold by the trading arm of Total SA as part of a tender, according to people with knowledge of the matter. Some of the oil has 39 parts per million of organic chloride -- a chemical that can damage refineries and equipment -- far beyond the single-digit levels that would be considered normal.

Russia’s unprecedented oil-contamination crisis began in April but it’s proven tricky and slow for the industry to absorb the supplies. The nation’s oil output was below its OPEC+ production target in the months that followed. Since then, cargoes have either been put into storage, stranded on oil tankers or sold at deep discounts.

“There’s a wave of factors that doesn’t make this crude very attractive to anyone unless it’s heavily discounted,” said Christopher Haines, an analyst at Energy Aspects Ltd. in London. “There’s just such a huge risk of taking that crude oil because if you blend it inconsistently you’ll end up having refinery problems.”

Pricey Storage. The market’s current price structure, known as backwardation, makes it expensive to store the crude, he said.

When the crisis was at its worst, some European refineries were forced to cut processing rates or even halt, prompting governments to tap emergency oil reserves.

In August, BP Plc failed to sell some of the contaminated Urals it inadvertently acquired during the crisis. That cargo had 29 parts per million of organic chloride.

There are still a handful of other shipments in limbo. At least two Aframax-class tankers, which usually carry about 700,000 bbl of Russian oil each, are yet to discharge the contaminated supplies. One is near Turkey and another is sailing to the Middle East, according to ship-tracking data compiled by Bloomberg.

“It’s more about minimizing their losses at the moment,” Alex Kavouris, a senior oil analyst at Facts Global Energy, said of the Total sale. “They’ve been trying to sell contaminated oil for how long now? It’s been sitting in storage, or in floating storage, and no one has been interested so maybe $25 is a good enough discount for both parties.”

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