Here’s the Next Biggest Threat to Global Crude Oil Prices

The next big threat to oil prices isn’t from OPEC or Bakken shale. It’s Russian samovars, or teapots.

Simple refineries that process crude into fuel oil are scaling back, because when oil prices slump, the government reduces the discount that these refiners — known as teapots to those in the industry — get for exporting fuel. They use less crude, freeing it up for sale abroad, which in turn adds to the global glut.

Russia may increase oil exports by as much as 250,000 barrels a day this year, according to James Henderson, a senior research fellow at the Oxford Institute for Energy Studies who’s followed the country’s energy industry for more than 20 years. That would equate to 5 percent growth in shipments, the most in at least a decade.

“The pain Russia is feeling from low oil prices has made more crude available for export,” Henderson said by phone March 18. “Quite a few of Russia’s simple refineries could reduce their runs.”

Rising shipments from Russia, which ranks with Saudi Arabia and the U.S. as the world’s biggest oil producers, would put more pressure on crude, already down more than 50 percent from last year. Falling energy prices and U.S. and European Union sanctions imposed last year in response to the Ukraine crisis have pushed Russia to the brink of recession, damping demand for refined fuel products in the country.

Rattling Teapots

Brent was up 74 cents to $55.17 a barrel at 3:26 p.m. in London. It slid 2.7 percent to $54.43 on Thursday. Crude loadings from Russian ports are 9.5 percent higher in the first quarter year over year, according to shipment schedules obtained by Bloomberg.

Teapot refineries processed as much as 800,000 barrels of crude a day last year, Igor Dyomin, a spokesman for Russia’s state-run pipeline operator, OAO Transneft, said by phone March 19. A teapot refinery is one that produces mostly fuel oil rather than more premium fuels, according to Dyomin.

Seven simple plants with a combined capacity of 1.2 million barrels a day are most at risk in the current price environment, according to Henderson.

Bloomberg

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.