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. Last Updated: 07/27/2016

LUKoil Dispute Hits Supplies to Germany

Russia has cut oil supplies to Germany in the past month, its pipeline monopoly said Friday, blaming the reduction on No. 2 oil producer LUKoil.

Oil traders said LUKoil's cut was yet another attempt to win better terms from Germany's monopoly importer of Russian crude, Sunimex, but expected the move to be short-lived and supplies to return to normal in September.

"We know that they have been cut by one-third over the past month. We don't know why it happened," Transneft vice president Sergei Grigoryev said.

The comment followed a statement Friday by Germany's PCK refinery at Schwedt that its supplies from Russia had been reduced in the past few days and it was looking for alternative sources.

"There are talks under way about this," the plant's spokesman said Friday. He said the problem was "not dramatic" but declined to comment on when it would be resolved.

One-fifth of German supplies arrive via the Druzhba pipeline.

But traders said Friday that the most recent development was linked to a trading dispute involving only LUKoil.

"It is the same old story. LUKoil likes having direct supply deals with refiners and doesn't like selling all its crude to Kishilov," said a trader with a Russian company.

Sergei Kishilov, a prominent Russian oil industry figure, has run the operations of Sunimex for over 10 years. Sunimex is a monopoly importer of Russian crude to Germany, including to the Schwedt refinery.

LUKoil declined immediate comment, saying it would issue a statement next week.

Russia was due to supply Germany with 5.45 million tons of oil in the third quarter (434,000 barrels per day).

Of that, LUKoil was due to supply 1.8 million tons, Surgutneftegaz 2.5 million tons, Slavneft 192,000 tons, Tatneft 300,000 tons, small producers some 368,000 tons and Belarus 190,000 tons.

LUKoil's monthly supply plan thereby amounts to around 600,000 tons and a cut by one-third would represent around 200,000 tons, or slightly less than 50,000 bpd.

"It has been continuing for some time, not just for one month. But as volumes are not that big, other Russians have been supplying extra volumes," a trader with a Western major said.

"It all looks very funny because this cut has been made public just when [LUKoil and Sunimex] seem to have reached a compromise," a trader with a Russian firm said. "I think there will be no problem from September onward."

A spokeswoman for mineral oil association MWV in Hamburg said the problem should not be exaggerated. "There certainly was no evidence of lower refinery output in the summer because of this," she said.

The Schwedt spokesman agreed, saying his company had had early warning about "swings, not stoppages" and was able to switch to a pipeline from Rostock on the Baltic Sea.

The 220,000-bpd Schwedt is owned by Shell Deutschland, Ruhr Oel, Agip and Total. It accounts for one-tenth of German refinery capacity.