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It might be too early to have a clear view, but recent data made
available through IHS Markit's Commodities at Sea suggests
liftings from Russia might have started to slow down, most probably
in parallel with the country's promise to comply with the OPEC+'s
agreement on production cuts. Total loadings during the first ten
days of April suggests activity has dropped 6.5% month-on-month and
around 4% year-on-year. Based on fixtures already agreed, loadings
in April are not expected to be as strong as the first quarter of
2019.
Moreover, senior officials from the country have confirmed that
pressure from domestic companies to end the OPEC+ production cuts
after the end of June has been increasing. This could mean Russia
might not participate in the agreement with the cartel for longer
than it originally agreed to. Even Russian supporters of the deal
now consider what the country should do next, since the market
situation has been improving, while stocks have been falling. An
output increase might not be far away for Russia.
This would provide the flexibility for participants of the deal
to either continue their coordinating efforts to cut output even if
Russia doesn't participate or increase output depending on market
conditions. Meanwhile, Saudi Arabia and other OPEC members suggest
it is still too early for the agreement to either be extended
beyond the end of June. The Kingdom seems to be determined to push
oil prices above USD 70 per barrel.
Elsewhere, Russia's Sokol crude premiums have been rebounding in
Asia, driven by the lower supply. The difference between the
country's light sweet Sokol crude grade and Dubai reached USD 3.50
per barrel in the Asian spot market, as lower supply and the
recovering demand for the Russian grade changed market sentiment.
During the second half of March, Sokol differentials dipped closer
to USD 2.50 per barrel as more light, sweet crude from the US
flooded the market. Even China is now expected to start importing
volumes from the US, with the first cargo expected to reach its
destination in late April/May.
Sokol crude has been produced from Russia's Sakhalin I oil
field, with an API gravity of 39.7 degrees and a sulphur content of
0.18%, very similar to US Permian light sweet crude WTI Midland
which has an average API gravity of 40.4 degrees and sulphur
content of 0.32%. But as US exports have been falling, demand for
Sokol is now starting to re-balance again.
Posted 18 April 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade