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Russia’s oil ban could break refineries today, motorists tomorrow

That being the case, President Biden’s ban on Russian oil imports has more to do with the bite. This is not to say that it will not harm some US refiners.

Last year, the US accounted for the world’s 3rd largest producer of imports of crude oil and petroleum products. Valero Energy was an importer of Russian crude oil and 41% of all oil products to the U.S. last year, according to data from the U.S. Energy Information Administration, Tudor, Pickering, Holt (TPH). Exxon Mobil XOM was one of the largest importers of crude in Russia 0.76%

(17%), PBF Energy PBF 18.65%

(8%) and Chevron (7%).

But some smaller companies have much higher relative exposure. By Pacific Holdings,

PARR 9.44%

Russian oil accounted for 14% of its total production last year, according to a TPH analysis. Its share price fell by about 5% the day after the company announced it would cancel Russian oil purchases for its Hawaiian refinery the next day. Shares of Par Pacific have fallen 4.2% since the invasion of Ukraine, and the S&P 500 refinery sub-index gained 3%. Although Russian oil accounted for about 8% and 5% of PBF Energy’s production last year, the shares of the two companies, respectively, rose in the same period.

There are two ways to ban Russian imports from harming refineries. It hurts margins as refineries look for replacement barrels in an already cramped raw market. U.S. crude oil trade inventories are about 12% below the five-year average for this time of year. Warehouses are also low among other countries in the Organization for Economic Co-operation and Development. This means that U.S. refineries will have to bid more than other eager buyers in the market. Second, the change in crude oil through the refining system reduces productivity. “It simply came to our notice then [oil grades] before that, the refineries would probably have launched them, ”said TPH stock analyst Matthew Blair.

What will be replaced by Russian barrels? In general, there are two vessels to think about. The largest includes unfinished petroleum products, such as the heaviest fuel oil, which is optimized for refining Gulf Coast refineries with complex refining capabilities. The heavier grades of unfinished oil in Russia helped replace refined Venezuelan crude oil that could not be imported by U.S. refineries in 2019 after imposing sanctions.

There are alternatives that can help fill the gap, even if it will cost refiners. Canada’s heavier crude is a good substitute, for example, but Rystad Energy said in a recent report that there may be limited capacity to do so. Notably, there was no increase in Canadian oil flows even after the arrival of barrels from Venezuela to the U.S.. Other options include heavier grades of domestically produced crude, including Mars and Southern Green Canyon, as well as raw Mexican Maya. Both Mars and Western Canadian Select are negotiating with tighter discounts compared to West Texas Intermediate compared to the previous month.

President Biden announced on Tuesday that he would ban the import of Russian oil into the United States amid growing calls from both sides. The U.S. will also ban imports of Russian natural gas and other energy sources, Biden said. Photo: Kevin Lamarque / Reuters

The smaller vessels to be replaced on the West Coast (including the Par Pacific refinery in Hawaii) are a lighter variety of crude imported from Russia — known as ESPO — to replace the declining import of light sweet crude from Nigeria due to production problems. as well as lower volumes of U.S. crude shipped by rail, according to American Fuel & Petrochemical Manufacturers. Although the U.S. itself produces a lot of light crude, its limited distance to oil-producing sites and limited pipeline infrastructure make it difficult to get inland from the West Coast.

Other foreign policy movements may alleviate the blow. The U.S. is in talks with Venezuela and Iran, which could return potentially heavier crude to the market. Other possible solutions — repealing the Jones Act, a federal law that makes it expensive to ship oil from one U.S. port to another, or building more pipeline capacity — seem like longer shots.

The biggest risk of reaching a 14-year gross price hike is that the U.S. is pushing Russia’s oil imports ban to put more pressure on Europe to continue on its way (the UK has already said it would phase out Russian oil imports by the end of the year) or Russia itself. to start restricting oil exports as a form of retaliation. This would put more pressure on world crude prices. If Americans reach a level where they start to reduce overall consumption, the logistical problems of the refineries will be of the least concern.

Write Jinjoo Lee at jinjoo.lee@wsj.com

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Russia’s oil ban could break refineries today, motorists tomorrow

Source link Russia’s oil ban could break refineries today, motorists tomorrow

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