A global agreement on limiting oil production begins to yield a small but extremely significant shifts in global oil trade, and it directly concerns Russia. One of the most popular brands of Russian oil was first sold in South Korea. “The announced pivot to the East, at least for oil, is working,” commented economists. However, this deal has its own tricks.
Refinery SK Innovation from South Korea for the first time in the last 10 years bought Russian Urals oil. She signed a contract with LUKOIL on 1 million barrels of oil with delivery in April, reported Bloomberg citing people familiar with the situation sources. In a press-service of the South Korean company confirmed the purchase.
“Probably, the transaction Russia with OPEC led to building a more rational pattern of trade in oil. This is not a war against all. Now to operate profitable”
“The supply of Urals oil – a rarity for Asia, because, as a rule, it is unprofitable compared to such brands as Oman or Upper Zakum,” – says analyst from Energy Aspects Ltd Nevin Tries.
“Because the supply of oil marks Dubai to Asia became more difficult to Russian oil supplies be beneficial for us” – explain in SK Innovation deal with LUKOIL.
In fact, buy South Korea Russian oil demonstrates how the OPEC agreement redistributes the flow of oil around the world.
South Korea and before buying Russian oil, but this oil was a completely different brand. “The Asian markets are sharpened and the oil is supplied from the Sakhalin deposits “Sakhalin-1” (mark “Falcon”) and “Sakhalin-2” (brand “knight”) and pipeline Eastern Siberia – Pacific ocean (ESPO, ESPO brand). Until now, South Korea has purchased the oil of these brands,” says leading expert of the national energy security Fund, lecturer of Financial University Igor Yushkov.
The Russian brand Urals Asian countries do not buy, because the oil is sharpened by delivery to the West from Novorossiysk, the Baltic ports or by pipeline through Belarus. It is a Western sort of oil and the quality of it is worse than ESPO and Sakhalin grades.
In fact, because of the extremely complex and expensive logistics of delivery of this oil to Asia and did not go. In this case it is necessary to tankers from Novorossiysk through the Suez canal. Why is it any different now? Igor Yushkov suggests that, most likely, we are talking about swap (exchange) deliveries.
“Saudi Arabia or Oman, for example, a contract for the supply of oil from Germany, and we have with South Korea. But, lest we haul crude oil in South Korea, and Arabs in Germany, is made a swap-deal. For deliveries to China, too often our companies are sending oil to Europe and our middle Eastern partners in China, but written on paper that it supplies to China. This offset”, – says Igor Yushkov.
In other words, the purchase of Russian oil is on paper, then physically delivery to South Korea come from the Middle East. Exactly the same as on the documents delivery to Europe takes place from the Arabs, but in reality, the oil comes from Russia. Therefore, all parties save on expensive logistics. “From the point of view of economy to carry oil from the Black sea to Asia rather strange. But the swap transactions is beneficial to us and the Arabs,” adds the source.
Given that OPEC members have pledged not to raise oil production in the framework of the agreement, probably, the Gulf countries can’t increase production to meet additional demand in Korea. Whereas in Russia, such opportunities exist – due to reduced exports to the West. After all, Russia has also committed itself to reduce production.
“Probably, the transaction Russia with OPEC led to building a more rational pattern of trade in oil. This is not a war against all, which was announced by the Saudis, claiming that will produce the maximum even at 20, 30, 40 dollars per barrel. They wanted all the competitors died. However, after a year saw that the American shale projects remain afloat, deep-water prey also lives. All bad, but nobody dies. Now it turns out that cooperation is more profitable. The new strategy of the monarchs of the middle East lies precisely in the fact to coordinate their actions with other players,” says Yushkov.
Previously, the Saudis are dumping and selling oil at a loss, only to win as big market share in Europe and in Asia. Now the Saudis and other Arab countries cut back on production. “They made a deal, because in 2016, spent too much of its reserves. And they are not used to it: they decades only added to the reserve funds, and suddenly a year they had a lot to spend. So the Arabs began to count the money, and swap (exchange) operation just everything is beneficial”, – said the expert.
Last year, Arabs were the first to break into the European market. While Russia, meanwhile, don’t just increased its influence in Asia, but moved to Saudi Arabia in China – and is the largest consumer of fuel.
This was the first time for all time of observations. Three years ago, Russia ranked only the third place on volumes of oil supplies to China. And by the end of 2016 – even the first. It managed to be made thanks to higher oil production volumes, and additional volumes sent just in Asia. Plus Russia slowly begins to withdraw volumes from the Western direction and to send to Asia.
“Last year we had 7 million tons of oil to be transported to China through Kazakhstan this year will go to 10 million tons. Why in Kazakhstan? Because removed the oil from fields in Western Siberia, not East,” said Yushkov.
Thus, deliveries to South Korea of Urals crude oil intended for European markets, can be considered another important step of Russia in trade diversion from West to East. “The announced pivot to the East, at least for oil”, – agrees the interlocutor.
This year Russia is able to consolidate the leadership in China and increase deliveries to other Asian countries. At the end of the year is expected commissioning of the oil pipeline Skovorodino – Mohe – is an offshoot from the ESPO pipeline to China (Daqing). The supply will eventually double to 30 million tons per year. Plus will increase supplies via Kazakhstan.
“I think 2017 will be even more revealing. It will be seen, for example, Transneft reduces the oil pumping to the West and increases in the East,” – said Yushkov.
However, Russia does not lose the European market, which came to the Arabs. “We increased production, so have time to the West and to the East to supply oil. If we did not take one this oil, we would not produce it. We, on the contrary – the problems with the market there is no taking it apart,” concludes the source.