In a new, punishing phase of the conflict between Russia and Ukraine, the Ukrainian drone strikes on Russian refineries have severely impacted Russia’s ability to produce refined fuels, turning the world’s third-largest oil producer into an importer of petrol. This has forced energy firms to sell unrefined oil overseas, pushing exports to a ten-month high in March.
The most recent attack on April 2nd by Ukraine extended their reach, setting fire to a unit responsible for 3% of Russia’s refining capacity. Overall, Ukraine’s attacks have knocked out a seventh of Russian refining capacity, with additional capacity offline due to maintenance work and flooding. This has led to spiked wholesale prices on the St Petersburg International Mercantile Exchange.
Russia’s oil giants are particularly suffering, as refineries that typically produce petrol and diesel for overseas clients have been diverted to domestic production. The volume of diesel passing through Russian ports has hit a five-month low, while oil barons are seeking new customers for their excess crude, incurring losses of around $15 per barrel.
Despite a slowdown in attacks since Vladimir Putin’s re-election in March, Ukraine shows no signs of stopping. Some refineries have been slow and expensive to repair, exacerbated by access to equipment being hindered by Western sanctions. Russian oil producers are also required to reduce production by about 5% as part of an agreement with OPEC+.
To shield motorists from the impact, the Russian government has banned petrol exports and struck a deal with Belarus, importing fuel to meet demand. They have also requested neighbouring Kazakhstan to set aside reserves in case of further attacks. The long-term consequences on Russia’s public finances are expected to be limited, with oil revenues representing a significant portion of the budget.
Observers are monitoring the situation to see if Ukraine’s attacks will affect the global oil market. So far, there has been limited impact, but the price of Brent crude has risen by 19% this year. Concerns over rising petrol prices and potential retaliation from Russia are prompting calls for Ukraine to halt their attacks.
Overall, the ongoing conflict between Russia and Ukraine is having significant implications on the oil and energy market, with potential economic and geopolitical ramifications. Stay updated on this developing story for more insights into the impact on global markets and economies.
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