Shell has announced a ban on oil supplies from Russia to the EU.
low oil majors have found a way to circumvent restrictions on the supply of oil from Russia. To do this, traders began to trade in the so-called Latvian oil mixture, sources told Bloomberg. In their opinion, Shell does not take into account mixtures of various grades of oil in Russia if the composition contains less than 50%. That is, a mixture of different varieties, in the volume of which Urals occupies 49.99%, the Russian one is not taken into account. Agency sources added that the company has made temporary amendments to the terms of the contracts.
Vedomosti sent a request to Shell.
Due to the characteristic difference of oil in the port of Ventspils, Latvia, oil traders unofficially called the blend Latvian.
Consumers and traders from the EU refused to buy oil after Russia launched military special operations in Ukraine on February 24. The United States and Great Britain (WB) have officially announced an embargo on the supply of Russian oil. On March 21, 2022, EU High Representative for Foreign Affairs and Security Control Josep Borrell announced the need to consider a similar ban at the EU level. A possible ban on the supply of oil from Russia to the EU, according to experts, will affect no more dangers from oil exports to Russia (Vedomosti wrote about this on March 22).
After the adoption of the resolution because of the special operation, the refusal to purchase oil in Russia sharply increased the growth of oil traders, and the Urals discount to the benchmark Brent brand showed 20-30 dollars per barrel.
The energy agency estimates that in 2021, cumulative oil demand in Europe is about 13 million barrels per day (b/d), out of a total of 97.5 million b/d. According to the CDU TEK, last year Russia exported a total of 214.4 million tons (about 1.57 billion barrels) of oil to non-CIS countries.
Majors’ attempts to prioritize oil supplies are fully justified in the framework of monitoring the Russian geopolitical situation, said Konstantin Simonov, director general of the National Energy Security Fund. The expert added that “blending” (a typical variety of varieties) of the implementation was earlier, and until recently “did not raise any questions.” An example is an expert supplied by the Caspian Pipeline Consortium (CPC; an international company that transports Kazakh and Russian oil), which consists of 10–11% Russian hydrocarbons. “This feature has always been clearly visible, and even now, amid the aggravation of political dynamics, the United States does not consider CPC oil to be Russian,” he noted. Simonov added that the very search for workarounds “talked about the interest of foreign companies in Russia.”
The supply of Russian oil went through the described scheme, on behalf of Yuri Fedyukin, managing partner of the law firm Enterprise Legal Solutions, “without causing additional legal conflicts,” but only until European regulators paid attention to it. “Such a move on the part of Shell can be regarded, on the one hand, as watching the election, and on the other hand, choosing one energy link with the election. As well as an acceptable selling price, ”Fedyukin believes.
Vasily Tanurkov, Director of the ACRA Corporate Ratings Group, recalls that earlier, in order to implement the flow from countries that fell under the jurisdiction of the EU and the United States (in particular, Iran), another “depersonalization” scheme was involved: shipment of a batch of oil in a European port using its purchase through neutral intermediaries.
“If European producers and regulators continue to increase pressure on Russian oil, then the market will go deeper and deeper into gray trading,” the Vedomosti expert said. He also added that the discount of Urals to Brent, most likely, will focus on the expected level of $20-30 per barrel. But even taking into account the discount against the backdrop of a price rally that began back in 2021, Russian exporters are all in the black, Simonov told Vedomosti earlier. According to the ICE exchange, on April 8, Brent futures for June cost $102 per barrel, WTI futures for May cost $97.4.