Oil Daily | U.S. Sanctions on Russia Impact Tanker Markets, Prompt Asia to Seek Middle Eastern Oil

【Oil-Producing Countries Dynamics】

Indonesia, after joining the BRICS group, is considering importing cheap Russian crude oil, provided it complies with international rules. The new sanctions by the U.S. on Russian oil firms Gazprom Neft and Surgutneftegas have caused a stir, prompting key Russian oil customers, India and China, to avoid sanctioned tankers.

Italy and Saudi Arabia signed a cooperation agreement focusing on renewable energy, hydrogen, and carbon capture. This agreement aims to enhance bilateral cooperation in clean tech and energy, with Italy positioning itself as an energy hub between the Middle East and Europe. Discussions also include potential partnerships in oil, gas, and mining sectors.

Kaja Kallas, the EU’s foreign policy chief, is advocating for a lower price cap on Russian oil to decrease Kremlin revenues. The current cap allows Russian crude shipments to use Western insurance if sold below $60 per barrel. While some EU members support this move, Russia relies on its own tankers and insurers to continue oil operations.

【Latest Oil Policies】

Germany's power utilities have increased oil and gas-fired electricity generation, preparing for reduced wind energy output. Despite surging fossil fuel demand, Germany is pushing green reforms to restrict emissions credits, thus boosting the biofuel industry. This move seeks to address concerns about price inflation in commodities and renewable biodiesel fuels.

Greece is urging the EU to accelerate measures to address high power and natural gas prices. Greek Prime Minister Kyriakos Mitsotakis has called for better grid integration and protection of natural gas security, highlighting the urgency given shifts in the geopolitical landscape and the EU's reliance on gas for the next two decades.

【Industry News】

Shell is expanding its joint-venture petrochemicals complex in China, betting on growing petrochemicals demand. The expansion will include a third ethylene cracker and a new facility for specialty chemicals. Shell sees this as a key part of its strategy in China, focusing on premium chemical products and domestic demand.

The planned construction of new nuclear reactors in France faces challenges in financing, supply chains, and timelines, according to France's Court of Auditors. EDF is planning to build six new reactors, but concerns over costs and delays may postpone investment decisions until 2026. The reactors are part of France's commitment to nuclear energy for climate goals.

【Company News】

BP expects lower Q4 earnings due to weak oil trading and refining margins. Refining margins decreased compared to Q3, with reductions in oil and gas production further impacting results. BP anticipates non-cash charges related to impairments and has postponed a capital markets event to allow CEO Murray Auchincloss to recover from a medical procedure.

【Others】

The American Petroleum Institute estimates a drop in U.S. crude oil inventories by 2.6 million barrels for the week ending January 10. Gasoline and distillate inventories have risen, while Cushing inventories increased slightly. This data comes amid a broader context of fluctuating energy supply and demand dynamics.

U.S. refiners are increasingly turning to niche crude grades from Latin America due to declining imports from Mexico. One notable grade is Bretaña from Peru, a heavy sweet crude transported via the Amazon. This trend is expected to continue as U.S. refiners seek alternatives to Mexican crude.

Freight rates for crude oil carriers are climbing following U.S. sanctions on Russia, affecting tanker demand. Middle Eastern oil is being sent to Asia to replace Russian barrels, causing a rise in shipping costs. This shift in trade routes is influenced by geopolitical tensions and market adjustments.