European gasoil market to suffer more if Russian energy sector sanctioned

By Sibel Morrow

ANKARA (AA) - The European gasoil market will struggle if sanctions are applied to Russia’s energy sector or if Russia decides to retaliate on other sanctions imposed on the country by restricting refined product supplies, Refinitiv said in a research paper entitled Oil on Boil: Russia-Ukraine Crisis.

Europe remains the top region for Russian gasoil exports, with France, the UK, Germany, Poland among the top five destinations, said Refinitiv, one of the world’s largest providers of financial markets data for commodities trading.

Gas-diesel oil and gasoline are by far the two most important products throughout the whole 31-year period of European Union nations, and hence any disruption in gasoil supply will send retail prices at the pump significantly higher, Refinitiv said, adding that Tuapse and Novorossiysk are the key ports in Russia from where gasoil is exported to several European countries.

Refinitiv said further supply cuts would send shock waves across the supply chain in an already tight gasoil market, which would require a monumental challenge to make up the shortfall.

Refinitiv warned that in the face of recent developments in Ukraine, "it will be important to look for other sources in case of supply cuts from Russia."

The second-largest exported oil product from Russia is naphtha, a flammable liquid hydrocarbon mixture.

Russia on average exports close to 725,000 metric tons of naphtha per month, from which almost 34% heads to South Korea, followed by 14% to Belgium and a further 12% to the Netherlands, according to Refinitiv.

These countries along with other European nations could look at alternate naphtha suppliers like the US and Algeria to replace naphtha volumes from Russia, while South Korea could source supplies in the Middle East and India.

- Sanctions in Russia to severely impact fuel oil

If economic sanctions on Russia meaningfully impact energy exports and the physical oil trade, Refinitiv said the impact on fuel oil markets could be severe.

"Russia is the primary source of global fuel oil supplies, accounting for 18% of global exports, if not more. A crunch on the low sulphur blending components could place upward price pressure on Very Low Sulphur Fuel Oil (VLSFO) prices in the Middle East and Asia, while Middle East fuel oil suppliers - like Saudi Arabia, Iraq, and Iran - could stand to gain as an alternative High-Sulphur Fuel Oil [HSFO) supplier in the East," Refinitiv explained.

For jet fuel, the impact of Russian supply cuts will not be as severe as gasoil as there is less dependence on Russia for European jet fuel demand, Refinitiv said.

A significant chunk of European jet fuel imports come from East of Suez, with Middle Eastern countries supplying the majority of the volumes.