U.S. nearly tripled imports of Russian oil in 2021
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Russia producers nearly tripled shipments of oil to the United States in 2021 – in 2020, the United States imported from Russia on average 76,000 barrels per day (bpd), while in 2021, that figure rose to 209,000 bpd, according to data from the Energy Information Administration (EIA) of the U.S. Department of Energy.

    The rise in imports is linked to a great extent to a shortage of sulphurous crude (with a sulphur content higher than 0.5 %) caused by sanctions imposed on the Venezuelan company PDVSA, under which oil shipments from Venezuela to the United States declined from 506,000 bpd to 82,000 bpd in 2019. And to zero in 2020-2021.

    The reduction in imports created risks for U.S. refineries located in the PADD 3 – the Petroleum Administration for Defense District No. 3, which account for about half of the U.S. oil refining capacity.

    Unity in sulphur content and density

    The refineries in question were traditionally focused on oil coming from Canada, Mexico and Venezuela, where exported oil typically had a high sulphur content, including Western Canada Select at 3.57 %, Mexican Maya at 3.33% Venezuelan Mesa 30 at 1.01 %, according to S&P Global Platts.

    In 2015, these three countries accounted for 53 5 of oil imports in PADD 3 (1.71 million bpd of 3.18 million bpd). Venezuela’s forced departure from American markets obliged refineries to boost shipments not only from Canada and Mexico (these two countries accounted for 62 % of all oil imports in PADD3 in 2020 and in the first 11 months of 2021 – 67 %) but also from Russia, whose share also rose during this period to 1 % to 4 %.

    This mutual connection is clear in data showing sulphur content of crude due to be refined.  In November 2021, the average sulphur content in oil refined by U.S. refineries stood at 1.31 %, while that figure for facilities located on the Gulf of Mexico coast was about 1.5 %. By way of comparison: sulphur content in WTI West Texas Intermediate does not exceed 0.2 %. A transition to low-sulphur content oil would require a technological shift which would inevitably cause cost increases, which could be avoided by looking around for new shipments of oil with high sulphur content.

   In this connection, Russia could increase it imports still further — all the more so as Mexico intends to abandon oil exports in 2023-2014. By that time, the Dos Bocas oil refinery on Mexico’s east coast is expected to be functioning at full capacity (with a capacity of 320,000 bpd) as well as the Cangrejera petrochemical complex, which is to produce aromatic hydrocarbons, including benzol and toluene, intermediate raw materials for ketones (Acetone)  and aldenhydes (formaldehyde and vanilla).

    Mexico’s departure from markets will make things more difficult for refiners in PADD 3 in terms of securing oil products – oil with high sulphur content can provide considerable help. “This is diesel oil; lubricating oil for production of engine oil, gearbox oil, waxes, and polishes; fuel oil for ships, factories, and central heating; residue such as bitumen for roads and roofing,” said John Chen, a professor at the University of Calgary.

Russian Urals type oil is closer than Brent to Mexican Maya oil in terms of both sulphur content (1.36 % compared to 0.4 % and 3.33 % respectively) and density, normally measured in degrees API (the lower the number of degrees, the higher the density). Brent has a density of 37.5 degrees API, while Urals stands at 31.3 and Maya 21.7.

Taking Iran’s place

    Urals is closer still to two types of Iranian export oil – Iran Light (sulphur content 1.58 %, density 33 degrees API) and Iran Heavy (3.29 % and 29 degrees API respectively0.

    The United States in November 2018 imposed an embargo on all oil imports from Iran, while allowing a temporary exception for the eight largest consumers of Iranian oil, including Italy, Greece, and Turkey.

    The eased regulations for these countries were rescinded in April and as a result, sea shipments of oil from Iran declined from 37.4 million tonnes in 2017 to 25.4 million tonnes in million tonnes in 2018 and 3.1 million in 2019).

    In 2019, the only European importer of Iranian oil was Turkey but the following year, imports were reduced practically to zero. As a result, Europe faced the prospect of a shortage of oil with high sulphur content, a problem Russian suppliers helped overcome. Sea-based imports of oil from Russia to Europe rose in 2019 by 5 % (to 150.2 million tonnes compared to 142.6 million tonnes).

    The growth failed to prevent a crisis with crude in the Transneft pipeline network as a result of which in the third quarter of 2019, the volume of oil trans-shipments of oil fell sharply (to 3.7 million tonnes against 8.6 million in the second quarter) to the port of Ust-Luga.  But the risk of a shortage led to a reduction in the discount for Urals as compared to Brent. In 2018, that discount stood at $1.50 a barrel, while in 2019 it was a little less than $.90.

    A narrowing of the price differential between Europe’s two benchmark types also took place at the beginning of 2022. In the first half of January 2022, Urals traded at a discount of $1.90 a barrel compared to Brent, while at the end of the month that differential had narrowed to $0.20 a barrel. The hypothetical risk of restrictions on oil exported from Russia boosted the price of Urals which, according to S&P global Platts, remains the main raw material for refineries in the northwest and the Mediterranean.

    Russia light oil

    Restrictions on supplies of oil from Russia could also create risks for Asian markets, where Russian light-sulphur types are sent. They include ESPO (sulphur content from 0.58 % to 0.65%), shipped through the East-Siberia-Pacific Ocean pipeline system, as well as the Sakhalin oil type Sokol (0.16 % according to data from S&P Global Platts).

    ESPO type oil is shipped through the Russian far east port of Kozmino – of the 32 million tonnes of oil sent for export from this port in 2021, 72 % was destined for China, 10 % for South Kore , 7 % for Japan and the remaining 11 % for various other countries in the Asia-Pacific region, according to data from Refinitiv.

    Similar geographical terms apply to Sokol standard oil type  – in terms of export through the port of De-Kastri) 86 % went to South Korea, 12 % went to Japan and China. This again proved that Russia is an important player on oil markets with consumers depending on it in Asia as well as in Europe and North America.

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