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Wednesday, May 22, 2019

Russia's Contaminated Crude Oil Problem

The latest issue of the Oil & Gas Journal offers up some analysis about the rise in oil prices, courtesy of Rystad Energy OIL PRICE RISKS RISE TO PRECARIOUS LEVELS:
Supply disruptions in the Middle East on top of an already tight crude market could send oil prices violently upward, according to Rystad Energy.

Two Saudi Arabian oil tankers were reportedly attacked off the coast of the United Arab Emirates (UAE) this weekend, sending crude futures sharply up Monday morning.

Commenting on the incident, Bjørnar Tonhaugen, Head of Oil Market Research at Rystad Energy, says:

“In the short term, the perceived risk of supply disruptions from the area will only add to the premium of short-dated oil contracts compared to deferred contracts on the futures curve, which are already trading at a high premium.”

The tightness in prompt supplies is caused by declines in production from Iran and Venezuela, along with ongoing OPEC cuts, outages in Russia owing to the Urals contamination, maintenance in Kazakhstan, plus planned maintenance in the North Sea during the summer months.

“The oil market is reacting today not because the physical market suddenly has lost more oil supplies, but because of risks that the market may lose more oil in the coming weeks and months given the heightened risk of supply disruptions from the critical Persian Gulf region. Raising tensions even higher, news flows suggest the latest incident might be related to the conflict between Iran and the US, which puts the Strait of Hormuz in play,” Tonhaugen said.
Wait, what? That part I highlighted says something about contaminated Russian crude oil? Perhaps you haven't heard that about The Giant Soviet Pipeline System That's Full of Tainted Crude
Europe’s oil refineries stopped accepting piped deliveries of Urals crude from Russia this week after flows were found to be contaminated with abnormally high levels of organic chlorides that, when refined, become hydrochloric acid that can damage the plants.
Russia’s government has blamed a private storage terminal in the center of the country for the problem. It will now take two weeks to ensure uncontaminated crude is flowing along the entire length of the pipeline.

The millions of barrels tainted crude will need to blended with larger quantities of unblemished oil to get the impurities down to safe levels, a task that might some weeks or months.

Organic chlorides are generally not present in crude oils, but are used to dissolve wax and during cleaning operations at production sites, pipelines or tanks.
Ah, well, Russia's Plan to Cleanse Tainted Oil Pipe Proves Slow-Going:
While there is nearly 1 million tons of contaminated oil in Belarus, the overall amount of substandard Urals crude in pipelines across the country, Russia, Ukraine and Poland may have been as much as 5 million tons as of the end of April.

Most of the tainted crude remains in the pipelines and is “eating away at them,” Belarus President Alexander Lukashenko said on Saturday. The nation and Russia are discussing what to do with the oil with no clear deadline for removing it.
Apparently, part of the Russian plan is to ship contaminated product to "Asia": Contaminated Urals cargoes stranded in Europe head for Asia:
With some contaminated cargoes of crude from the Urals headed to China and the Bahamas, the remaining oil cargoes are stranded in Europe while Asian buyers are sought
Oil traders sell dirty Russian crude to Asian buyers:
Trading companies Vitol and Unipec are sending around 700,000 tonnes (5.1 million barrels) of contaminated Russian oil to Asia in an attempt to place the barrels rejected by buyers in Europe, according to trading sources and ship tracking data.
Vitol has sold its cargo to Chinese independent refiner Bora Group while Unipec is moving the oil to refineries in China owned by its parent company China Petroleum and Chemical Corp (Sinopec), the sources said.

“We took the oil after evaluating that our refineries are able to process the crude,” one of the sources told Reuters, adding that the price was also attractive given that Middle East crude grades are trading at multi-year highs on tight supply.
A good time is being had by everyone except the Russians and the companies that bought the contaminated product and had it screw up their refineries, Total Declares Force Majeure On German Refinery After Russian Oil Contamination:
On Thursday, Total declared force majeure on shipments of refined oil products from the Leuna refinery after the suspension of the oil flow via the Druzhba pipeline.

Russian pipeline operator Transneft will compensate its customers for the losses they have sustained due to the contaminated crude oil, Russian Deputy Prime Minister Dmitry Kozak said on Thursday, noting that refiners must first prove their damage and loss in order to claim compensation.
And, it's all one more reason while oil prices go up.

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