Contamination Halts Russian Oil Flows to Parts of Europe

SEATTLE (Oil Monster): Russian oil flows were halted across Europe after customers complained of unusual impurities in the crude, adding another disruption to the global oil market and briefly pushing prices in London above $75 a barrel.

Poland, which receives oil through a northern section of the giant Druzhba pipeline, stopped Russian imports, saying shipments have become contaminated by organic chlorides. The halted section passes from Poland to Germany. Ukraine similarly halted barrels flowing through the southern link of the pipeline.

“The level of contamination could cause physical damage to refining facilities,” Poland’s pipeline operator PERN SA said late Wednesday. Organic chlorides become hydrochloric acid during the refining process, damaging the plants.

The outage, which is very unusual, comes at a time when the global oil market is already short of supply of crude of similar quality to Urals. The combined impact of U.S. sanctions on Iran and Venezuela, OPEC+ production cuts, and lower-than-expected output in Mexico has reduced worldwide shipments of denser, medium-heavy crude with high sulfur content.

Brent crude passed $75 a barrel for the first time since October earlier on Thursday. It settled at $74.35.

Organic chlorides are not naturally occurring and are used in upstream processes to boost output, “but must be removed before bringing crude parcels to market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.

The northern part of the pipeline delivered about 730,000 barrels a day of crude to Germany and Poland in the final five months of last year, Russian Energy Ministry data show. Flows to Germany via the link have also stopped, according to a person familiar with the matter.

Ukrainian state-run Ukrtransnafta said on Facebook that it “was forced” to halt transit of Russian oil to the European Union via the southern link because the crude didn’t meet quality requirements. Slovakia has also refused to accept the oil for the same reasons.

Mol Nyrt., which has refineries in Hungary and Slovakia, had said earlier that it was monitoring crude as it flowed through the southern section of the pipeline and that the oil it had observed met the company’s required operation standards.

In a sign that oil traders are scrambling for replacement barrels, the price difference between Brent crude for immediate delivery and the six-month forward contract surged to as much as $3.25 a barrel on Thursday, the widest spread in about five years. As much as 1.5 million barrels a day are at risk, according to data compiled by Bloomberg.

The contamination issues emerged late last week when Belarus, which sits between Russia and Poland, complained that its refineries could suffer damage. The pollution issue also affected flows via the port of Ust-Luga on Russia’s Baltic Sea coast, a person familiar with the matter said Wednesday. Poland’s biggest refiners, Grupa Lotos SA and PKN Orlen SA, said Thursday their productivity won’t be affected.

Courtesy: www.bloomberg.com