Azerbaijan not to change oil transit plans unless force majeure hits

Azerbaijan confirmed its obligations to transit the batches of oil agreed with Transneft in the second quarter of 2022 through the Baku-Novorossiysk oil pipeline, despite the shipowners' fears about the safety of entering this Russian port on the Black Sea. Fears are also linked to the reduction in purchases of the Urals mixture by oil refineries in the world and the fall in its quotations in relation to Brent, Report mentions, citing its informed sources in the government of Azerbaijan.

"Oil shipments from Novorossiysk are still on schedule. And we have an application for the transportation of 340,000 tons through the Baku-Novorossiysk oil pipeline in the second quarter of 2022. For the first quarter, it was 320,000 tons. Any change in these obligations can occur only in the event of force majeure, and at present, there is none," the source said.

Earlier, S&P Global Platts and other Western analytical publications wrote that refineries in Europe and Asia are either refusing to buy Urals or taking it at a big discount. Many shipowners say they are not sure whether they will enter Russian ports - Black Sea or Baltic, amid international sanctions against Russia.

At the end of last week, Russian Urals oil fell to its lowest level ever compared to Dated Brent, with its differential down $4.35 per barrel daily.

CIF Rotterdam Urals was rated against Brent at minus $11.23/bbl for cargo loaded in the Baltic Sea, and CIF Augusta at minus $10.93/bbl.

Tensions intensified on February 28, as the third package of EU sanctions against the Russian Federation came into force (disconnection of large Russian banks from SWIFT, restrictions on foreign exchange transactions of the Central Bank of Russia).

Crude oil jumped to over $103 a barrel, and the Russian ruble plunged nearly 30%.

Rising tensions fueled fears that oil supplies from the world's second-biggest producer could be disrupted, pushing futures for Brent crude to top $102-$103 a barrel and US WTI crude to nearly $97 a barrel, Reuters said.

Banks in many countries prefer not to open letters of credit for transactions with Urals.

“Even if Azerbaijani oil goes to the world market as Urals, but its origin is Azerbaijan, such oil in any mixture is not and will not be subject to sanctions,” a source in SOCAR explained.

Nevertheless, S&P Global Platts writes that the difficult situation affects not only the Urals blend (in the Black and Mediterranean Seas), but also the Russian Siberian Light and Kazakhstan CPC Blend, which are loaded from the Black Sea port of Novorossiysk.

Asian oil refiners are also re-evaluating the logistical risks in trade flows from the Black Sea, according to the analytical publication.

It is noteworthy that the STAR refinery in Turkey, owned by SOCAR, did not buy Urals in February; CPC Blend and Basrah Light (Iraq) oil prevailed in its basket. The last time the plant received the Urals was in January, and it is not yet clear whether there will be purchases for March.