Russia may try to push greater volumes of a key oil product into Asia, possibly blending some with crude oil, in a bid to find alternative markets as European sanctions tighten, according to FGE.
More Russian-made naphtha -- a fuel primarily used to make plastics -- is likely to head into hubs such as Singapore and Fujairah from February when EU sanctions kick in, said Armaan Ashraf, global head of natural gas liquids at the consultancy. Re-exports from these regions could become common as some buyers shy away from direct imports from Russia, he said in an interview.
Moscow’s invasion of Ukraine has caused turmoil across energy markets this year, and that disruption is set to extend into 2023. A European Union ban on most flows of Russian crude will start in December, followed by a similar move against products including naphtha about two months later. While the Energy Information Administration expects Russian crude output will drop as a result of the curbs, local refineries will still need to find outlets for their naphtha.
Russian naphtha exports to Asia rose 84% in August to about 130,000 barrels a day compared with all of July, according to preliminary data by Vortexa Ltd.
That increase came despite weak regional conditions as local plastic makers, the key consumers, struggle with thin margins and poor plastics demand from China. Softer gasoline margins are also eroding the demand for converting naphtha into gasoline blendstocks, further narrowing use.
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Reflecting the tough conditions, margins for making naphtha in Asia are negative, at minus US$17 ($23.70) a barrel. In addition, prompt time spreads for the fuel are in contango, a bearish structure that signals plentiful near-term supply.
Overall Russian flows of crude oil and products may decline when the EU’s latest curbs kick in, Citigroup Inc. said in a note. The drop is expected to total about 1.25 million barrels a day, a lower figure than some other estimates, it said.
Russian naphtha may already have been blended into the country’s Urals crude and shipped to India earlier this year, according to Ashraf. “The blending of heavy full-range naphtha or heavy naphtha in limited quantities could reap much more benefits versus selling the naphtha cargo directly,” he said.
