Russia seeks new fuel markets in Africa and Middle East as Europe turns away

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MOSCOW: Russia is increasing supplies of gasoline and naphtha to Africa and the Middle East as it struggles to sell fuel to Europe, while Asia is already absorbing larger volumes of Russian crude, according to data from Refinitiv Eikon and according to sources.

The development is likely to increase competition for Asian customers between Russia and other major fuel exporters – Saudi Arabia and the United States – which are Asia’s three main suppliers.

The European Union has been slowly reducing Russian crude and fuel imports since March and agreed to a full embargo that will come into effect by the end of 2022.

Asian buyers have stepped in to rapidly increase purchases of Russian crude, even though Asia is not a natural market for Russian fuel as Asia refines more oil than it needs and is an exporter net of fuel.

This makes finding new outlets such as Africa and the Middle East paramount for Russia to protect its global market share and avoid a deeper decline in oil exports and production.

“Africa and the Middle East appear to be the main options for Russian petroleum product suppliers, so we expect more shipments there in the second half as the EU embargo draws nearer” , a trader involved in trading Russian petroleum products told Reuters.

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Russia exported more than 2.5 million barrels per day (bpd) of crude and some 2 million bpd of fuel to Europe before sanctions against the Russian financial sector, which made trading much more difficult.

Russian oil companies have recently increased deliveries of gasoline and naphtha to Africa and the Middle East from the Baltics, traders said. Before the sanctions, most Russian supplies to the regions came from Black Sea ports.

At least five shipments carrying around 230,000 tons of gasoline and naphtha were delivered in May-June from the Baltic port of Ust-Luga to Oman and the UAE oil hub of Fujairah, according to Refinitiv data. .

In total, naphtha and gasoline supplies from Russian ports to Oman and the United Arab Emirates totaled nearly 550,000 tonnes this year, compared to zero for the whole of 2021, the data showed.

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Nigeria and Morocco have been the main destinations in Africa for Russian gasoline and naphtha in recent months, according to data from Refinitiv Eikon and traders, while several shipments have also been supplied to Senegal, Sudan, the Ivory Coast and Togo.

The overall monthly supply of Russian gasoline and naphtha to the region was around 200,000 tons in recent months, including volumes shipped from storage in Latvian and Estonian ports, according to data from Refinitiv Eikon.

Shipments of Russian diesel to African countries have reached 1 million tons since the beginning of the year, compared to 0.8 million tons in January-June 2021, with Senegal and Togo being the main destinations, according to data from Refinitiv and Reuters calculations.

In May, arrivals of Russian fuel oil to the UAE oil hub of Fujairah also increased sharply.

Despite higher shipping costs, supplying Russian petroleum products to Africa and the Middle East helps trading companies preserve margins as options for reselling petroleum products in Europe have been limited due to sanctions , traders said.

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“Sohar (in Oman) and Fujairah (in the UAE) could offer storage and blending capacity for all these barrels, as European ports have started to refuse Russian oil products,” said a market source involved in the dispute. trade in Russian petroleum products.

DISRUPTION OF THE DOMESTIC MARKET

Developments in Russia’s export markets have resulted in unprecedented disparity in Russia’s domestic market. Summer-grade diesel is currently trading at prices 30-40% higher than gasoline, according to Reuters data. Gasoline is normally more expensive than diesel.

Previously, Russia exported gasoline and naphtha to European trading hubs but had to look to Africa and the Middle East amid weak demand in Europe, traders said.

As a result, domestic prices for these products in Russia collapsed due to abundant supply.

Russian gasoline traded between $250 and $300 a ton below unsanctioned European product, which was recently valued at around $1,330 a ton on an FOB basis.

Diesel shipments have been discounted much less – about $40-50 a tonne below the unsanctioned European product – as demand is still strong, traders said.

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