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. Last Updated: 07/27/2016

Exports of Oil and Gas Surge, Hit Price Levels

LONDON — A surge in Russian exports of gas oil and fuel oil will add to bearish pressures on the European market over the next few weeks, analysts and traders said Friday.

Analysts expect Russian exports of gas oil to reach 2.8 million tons (700,000 barrels per day) this month, with fuel oil exports particularly high at 3.8 million tons (800,000 bpd).

With Russian exporters unable currently to move their product to the United States because of closed trans-Atlantic arbitrage, they will be hard put to locate buyers in both northwest Europe and the Mediterranean at existing price levels.

Traders said they were already seeing exports out of the Russian Baltic port of Ventspils offered at discounts of about $5 a ton against the mean of published price quotes.

"Domestic demand in Russia is slow, and more July export volumes are expected," a gas oil trader said. "The arbitrage to the U.S. east coast is shut and, on top of that, there's no demand in Germany."

The European heating oil season is grinding to a halt as temperatures rise while demand for high sulphur fuel oil demand is on the wane and product already plentiful across Europe.

Conrad Gerber, oil analyst with Geneva-based Petrologistics, said the rate of Russian gas oil exports via Baltic and Black Sea ports had jumped to 690,000 bpd in the week ending June 16, compared with 590,000 bpd in the previous week. "I'd expect about 700,000 bpd for the whole of June," Gerber estimated, a big leap from around 550,000 bpd in both June and July of last year.

"The process of increased flows has begun," he said.

Weekly fuel oil exports meanwhile soared by 120,000 bpd to 850,000 bpd.

Gerber said June was traditionally the biggest month for Russian fuel oil exports, but he expected this month's total flows to be particularly heavy at about 800,000 bpd, up from 730,000 bpd in June 2000.

Traders said a recent hiccup in exports, linked by some to logistical problems on railways linking Russian refineries to Baltic ports, had been overcome, and that exporters were making up for lost time.

Recent problems with excessive levels of hydrogen sulfide in some Russian high sulfur fuel oil export cargoes are also believed to have been resolved. Russian refinery throughput and exports of oil products have in any case been on the rise this year, analysts said.

There was also talk circulating among European oil traders that Russian federal railway tariffs had been cut over recent weeks in a bid to compete with the usual surge in the use of river barges during the summer months.

Since the beginning of June the price of Russian Urals crude has fallen 9.2 percent, roughly in line with the fall of global benchmark Brent crude. Analysts are forecasting a continued drop of Urals even if Brent stabilizes.

The American Oil Institute last Wednesday announced that U.S. crude reserves had risen by 1.417 million barrels and gasoline reserves by 3.612 million barrels. The July price for Brent futures traded Wednesday in New York immediately fell by $0.98 (3.5 percent) to $26.5 per barrel, while the August contract price dropped by $1.16 (4 percent) to $26.48.