Shale Crude Quality, “Oil Laundering” Amid New Russia Sanctions, and EU Gas Supplies

MAIN TAKEAWAYS

• Crude quality has emerged as a major issue in global oil trade in light of US shale production, sanctions on Iran, Venezuela, and Russia, and also amid low global diesel inventories. On top of that, heavy refinery maintenance is expected to accentuate the importance of crude quality around the world. All this will leave price differentials and distillates in a bullish state.

• The increase in US condensates production in certain areas of the shale plays is concerning, mainly because it defies recent trends and will affect US crude trade. It remains to be seen if this is a blip or a new trend. If it becomes a trend, it will support our bullish forecast for the fourth quarter of 2023.  While such a trend will mean higher US crude imports, it is still early to know how this will affect exports.

• The European Union’s ban and the G7-led price caps on Russian petroleum products will not reduce Russia’s oil exports significantly. Russian oil will keep flowing, but trade routes will continuously change, while the process of “oil laundering” will reach its highest levels in the history of the oil industry.

• The EU gas imports from Russia reached an all-time LOW in January.  However, it is unclear yet if such imports will remain at these low levels when EU member states start refilling their gas stockpiles to prepare for the next heating season.

IN DETAIL

Crude Quality Matters

The US Energy Information Administration (EIA) released its November data last week, with a surprise related to crude quality in the shale oil plays. But before we go into details, we would like to remind our readers of some facts: