European Union Prepares to Stop Fuel Imports from Russia

Recap: There are no settlements due to the Martin Luther King, Jr. holiday.

Fundamental News:  IIR Energy reported that U.S. oil refiners are expected to shut in about 1,213,000 bpd of capacity in the week ending January 20th, cutting available refining capacity by 383,000 bpd. Offline capacity is expected to fall to 1,114,000 bpd in the week ending January 27th.

The planned restart of the second process platform on Equinor's Johan Sverdrup oilfield has been postponed due to an equipment fault, and repairs are now ongoing. Equinor's Sverdrup field last week suffered an outage due to a loss of power supply, but electricity was restored on Friday, and the company had planned to resume oil output. Equinor said "Start-up of production on Process platform no. 2 is now delayed due to an equipment fault that occurred when starting after a couple of days from a cold platform." It did not say how long the repairs were expected to take. Sverdrup's second process platform, which began producing for the first time last month, has a capacity to produce up to 185,000 bpd, although it had not yet reached this level ahead of last week's power outage. Equinor said Sverdrup's first process platform is operating as normal and produces a stable 535,000 bpd.

The United Arab Emirates' Energy Minister, Suhail al-Mazrouei, said that oil markets were balanced.

European traders are rushing to fill tanks with Russian diesel as the clock runs down on a February 5th European ban expected to tighten supplies, redraw global shipping routes and increase price volatility. China increased its first batch of 2023 export quotas for refined oil products by nearly half from a year ago. Mark Williams, research director of short-term oils at Wood Mackenzie, said China’s diesel exports, likely to make up most of the quotas, could reach 400,000-600,000 bpd in January-June. Meanwhile, Energy Aspects analysts said "But without Chinese exports pushing swing barrels westward, Europe is unlikely to replace the 0.5 million bpd loss in Russian diesel exports come the embargo.” According to energy analytics firm Vortexa, European diesel imports from Russia stand at 770,000 bpd so far this month, the highest since March last year. WoodMac expects diesel margins to crude to average $38/barrel in January-June, more than double the 2018-22 six-month average when compared with Refinitiv Eikon data.

Latvia has imported its first cargo of diesel from China in a sign of the rapid redrawing of global oil routes as the European Union prepares to stop fuel imports from Russia. The Norddolphin docked in the Latvian port of Ventspills earlier this month with a 75,000 ton cargo of diesel after a seven-week voyage from the port of Dalian in northern China.

Iranian oil exports reached new highs in the last two months of 2022 and are making a strong start to 2023 despite U.S. sanctions. Energy consultant SVB International said Iran's crude exports in December averaged 1.137 million bpd, up 42,000 bpd from November and the highest 2022 figure SVB has reported based on estimates given earlier. Petro-Logistics, which tracks oil supply, said it was also seeing an upward trend in Iranian crude exports which, in its view, in December reached their highest level since March 2019. Kpler estimated Iranian crude exports at 1.23 million bpd in November, the highest since August 2022 and almost on a par with April 2019's rate of 1.27 million bpd, although they fell to just below 1 million bpd in December.  

Loadings of nine North Sea crude grades will average 1.809 million bpd in January, down 1.6% from 1.842 million bpd originally planned for December.

Early Market Call - as of 8:35 AM EDT

WTI - February $80.40, up 54 cents

RBOB - February $2.5517, up 1.89 cents