Controversial Purchase of Russian Crude is To Ensure EU Refinery Supply

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  • Traders, refiners shunning Russian oil over Ukraine
  • Shell lifts cargo at record low level in Platts MOC
  • Shell promises to commit profits from Urals to humanitarian fund

Shell’s recent controversial purchase of Russian crude oil was a way to ensure supply to European refiners, even as the majority of global refiners have effectively self-sanctioned against the country’s output due to Moscow’s invasion of Ukraine, reports Platts.

Difficult decision

Calling the decision “difficult” and noting the “strength of feeling around it,” Shell said it would “commit profits from the limited amount of Russian oil we have purchased to a dedicated fund.”

The company said in a statement that it would work with humanitarian agencies and other aid providers to “determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine.”

Shell on March 4 issued a statement saying it had bought a cargo of Russian crude to “ensure the production of essential fuels and products that people and businesses rely on every day.”

Lack of buyers 

The lack of buyers, particularly in Europe and the US, has sent prices of Russian petroleum exports to record-low levels, particularly for its benchmark medium sour Urals crude.

Shell on March 4 purchased a cargo of Russian Urals export crude from Trafigura in the Platts Market on Close assessment process by S&P Global Commodity Insights at a record low differential to Dated Brent.

Shell purchased the Baltic cargo to load March 14-18 at a price of Dated Brent minus $28.50/b.

The company declined to comment on the specific transaction.

The media outcry over the purchase of the crude was seen by oil industry participants as impetus for the second statement, with some traders noting that Shell would net about $25 million on the deal.

Combination of uncertainty

Sources familiar with the company’s refinery operations noted that Shell’s 404,000 b/d Pernis refinery, located in the oil hub of Rotterdam, is down for planned work through the end of June. The Urals cargo bought by Shell is expected to arrive in Rotterdam on March 25.

Shell on Feb. 28 said it is breaking off its partnerships with Russian energy giant Gazprom, including the Sakhalin-2 crude and LNG project in the Russian Far East, and ending its involvement in the Nord Stream 2 pipeline project in response to the invasion of Ukraine.

Russian oil supply to the global market could fall by 1 million-2 million b/d this month, according to an analysis by S&P Global Commodity Insights, as a result of financial sanctions on Moscow and as traders and refiners voluntarily suspend purchases of Russia’s oil.

A combination of uncertainty of the scope of existing sanctions, logistical issues, problems obtaining letters of credit and companies shunning Russian oil led to the discount for Russia’s key export crude Urals.

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Source: Platts

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