IEA: US challenges Russia for Europe crude oil supplier rank

The US is the main contender to become Europe’s biggest supplier of crude oil as refiners scramble to source alternative supplies ahead of a looming EU sanctions deadline, the International Energy Agency (IEA) said in its latest monthly Oil Market Report.

By August, the gap between imports of Russian and US barrels narrowed to just 40,0000 b/d, from a 1.3 million b/d pre-war average. US crude oil made up for almost half of lost Russian volumes in the region. Increased inflows from Norway, up by 310,000 b/d, contributed to replacing another one third of foregone Russian crude oil. While Russia narrowly kept its lead as the biggest source of crude oil supply to EU countries (the UK has stopped crude oil imports from Russia), its share in their total imports has fallen to 17% from 27%.

By August, the EU and UK had cut imports of Russian crude oil by a combined 880,000 b/d compared with pre-war levels. IEA’s trade model, based on Kpler cargo tracking and estimated overland volumes, shows their crude oil imports from sources outside Russia increasing by about 1 million b/d over the same period.

Kazakhstan was the third-largest crude supplier to the region. In addition to the US and Norwegian supplies, increased arrivals from Iraq, Saudi Arabia, Guyana, and Brazil were able to close the gap and meet higher import requirements.

Beginning in December, EU countries will need to replace an additional 1.4 million b/d of Russian crude oil volumes versus August. When Kazakhstan volumes recover to normal levels, it could provide 400,000 b/d to help offset Russian losses. US crude output is set to increase by about 300,000 b/d towards yearend, which could replace the current additional volumes from the SPR release, set to expire in October.

Over the March-August period, the US SPR provided around 730,000 b/d of crude oil to the markets. However, higher imports from other sources, such as the Middle East and Latin America, would be needed to fully meet the new import requirements. For these suppliers, it is a question of arbitrage between their traditional Asian customers and new European buyers.

Russian exports

Russian export options have significantly narrowed. Its top four customers EU, China, India, and Turkey now account for over 83% of total volumes, compared to 70% last year, according to IEA. The EU’s crude oil and product import bans, which come into force in December and February 2023, respectively, will remove the world’s largest oil importing region from the list of Russian oil buyers.

In August, total oil exports from Russia rebounded by 220,000 b/d to 7.6 million b/d. Crude exports rose 190,000 b/d to 5 million b/d. Product exports were relatively stable at 2.6 million b/d. Russian oil export revenues benefited from an initial surge in oil prices, but as crude prices have dropped by almost $35/bbl since June, the windfall has contracted. Estimated revenues fell by $1.2 billion to $17.7 billion as lower prices more than offset volumetric gains. Russian oil revenues may take a further hit when EU sanctions on Russian oil imports go into effect in December.

The EU was again the largest buyer of Russian crude oil in August. Shipments to the EU were largely unchanged month-over-month (m-o-m) at 2.8 million b/d, with higher crude oil volumes offsetting lower product exports. For the first time since the start of the war in Ukraine, Russian crude oil exports to the EU increased m-o-m, but only to two destinations—Italy and the Netherlands, where Russian oil major Lukoil owns refineries.

Product loadings to the EU, by contrast, fell by 140,000 b/d m-o-m, spread across diesel, fuel oil, and naphtha, to 1 million b/d. Diesel shipments fell to 580,000 b/d, some 10% lower than average January-February levels. Overall, EU liftings of Russian oil have declined by 1.1 million b/d since Russia’s invasion of Ukraine, reducing its share in Russian exports to 37% from 49%.

Crude oil shipments to China were largely unchanged m-o-m, and marginally below the EU levels, with no recovery after the 400,000 b/d m-o-m fall in July from the peak June levels. Official Chinese data for July recording volumes that arrived and cleared customs, show Russia remained the country’s largest crude oil supplier for the third consecutive month, accounting for close to 20% of all imports.

In August, a shipment of 330,000 bbl of fuel oil was sent to the UK, which was discharged on Sept. 6 at the Lindsey refinery owned by Prax Group. The UK oil embargo on Russian oil imports comes into force at yearend.

Total oil exports to India fell by 120,000 b/d to 1 million b/d. Volumes to Turkey surged to a record 580,000 b/d. Of this, 350,000 b/d was crude oil, equivalent to almost half of the country’s typical refining intake.