Oil-hungry buyers reel from prospect of Russia sanctions

Serene Cheong and Sherry Su February 14, 2022

(Bloomberg) — Oil importers are racing to assess the risk of purchasing Russian supplies as tensions over Ukraine enter a potentially decisive week. 

Traders and buyers of Asia’s favored oil grades from Russia, particularly ESPO and Sokol from the far east, are becoming increasingly wary of being caught up in possible trade restrictions should the OPEC+ producer be sanctioned, they said. While that outcome is less likely, market participants told Bloomberg that they were starting to reconsider procurement plans for April. 

Several buyers in Europe said they are still waiting to see the full impact of the Ukraine situation. Prices are already taking a hit though, with Urals crude in Europe plunging to the biggest discount to forward Dated Brent since April 2020, according to S&P Global Platts data for Friday. That’s in stark contrast to strength in almost every other corner of the oil market.

Asia-focused grades had been holding up well. Last week, Sokol traded at its widest premium in two years as buying interest surged due to strong gasoline and diesel margins as well as a divergence in oil benchmarks. Traders will be closely watching the next Sokol tender, which closes Tuesday, along with the ESPO trading cycle that starts this week.

Crude from Saudi Arabia and Abu Dhabi will be the possible beneficiaries should Asia shun Sokol and ESPO, traders said. Buyers will likely ask for more supplies from the kingdom, which are sold on a long-term basis, or turn to spot supplies of Murban from Abu Dhabi.

West Texas Intermediate and North Sea oil are less viable alternatives in Asia with Western demand for those grades surging and making them more expensive relative to Middle East supplies. Nearby prices are also at steep premiums to later ones, meaning such cargoes are unattractive in regions that take longer to ship to. 

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