European Union must look to Asia for oil imports, says UBS report
As the embargo on imports of Russian oil by the European Union (EU) is due to come into force by the end of the year, the region must look to other sources, mainly China, said UBS in a report quoting an oil industry expert.
Global investment firm UBS had recently arranged a call with Jonathan Leitch, director of EMEARC (Europe, Middle East, Africa, Russia and Caspian) consulting at Turner Mason & Company.
The call aimed to discuss the short and long-term outlook for the European refining market and focused on recent supply-side disruptions, the impact of the upcoming capacity increase on global petroleum product balances and the expected timing of margin normalization, UBS said.
According to Leitch, the loss of Russian imports to the EU could exceed 700 kb/d, and other sources are needed to fill the gap.
According to the UBS report, Leitch believes that the direct impact of the sanctions on the EU will be somewhat limited due to the mixing and redirection of Russian diesel and heating oil exports.
This will significantly complicate logistics and is expected to drive up freight prices. The ban on insuring Russian oil shipments will exert additional pressure.
Leitch was of the view that the potential Russian oil price cap is unachievable, UBS said.
Regarding the import of oil from Asian countries like India and China, Leitch said the former had recently introduced export limits and tax changes to ease domestic pressure from high prices.
However, he expects an impact of less than 100kb/d on the drop in India’s diesel exports in 2H22.
On the other hand, China has high levels of spare capacity.
“Although the country’s export quota was recently increased, the expert does not believe the country will significantly increase its exports as environmental concerns and retail fuel price caps discourage companies from increasing use. capabilities,” the UBS report notes.
Regarding the possibility of European refineries increasing their production of diesel, Leitch was of the opinion that, while high margins encourage them to maximize cycles, the closures carried out in recent years as well as the underinvestment in the sector are now reflected in the fact that crude volumes remain below historical highs.
Leitch expects races to increase through August, but there will also be the issue of seasonal maintenance activity.
With higher crude oil volumes year-over-year, additional diesel supply is estimated at around 250 kb/d compared to last year. Since the loss of Russian imports could exceed 700 kb/d, other sources to compensate for the decline are needed.