Kazakh oil producers, which export crude via the Caspian pipeline consortium (CPC), are seeking to divert flows to Russia’s Transneft from May in an attempt to minimize losses as CPC Blend margins and demand fall, five market sources said.
Companies including Chevron’s Tengizchevroil, Karachaganak Petroleum Operating (KPO) and state-owned Kazmunaigaz (KMG) plan to redirect 4.5 million barrels to transit via Russia’s Novorossiisk and Ust-Luga ports, the sources said.
This would allow them to mix their barrels and to export Urals oil instead that trades $5-6 a barrel above the CPC Blend and is much easier to place, they said. BFO-URL-NWE BFO-URL-E
Oil blended for the CPC route is known as CPC Blend while for Transneft destinations Kazakh barrels are mixed with Russian grades and sold as Urals Blend.
CPC, the largest privately-operated route connecting oil fields in Kazakhstan and Russia with the Black Sea, is co-owned by a number of shareholders including U.S. oil majors Chevron (CVX.N) and ExxonMobil (XOM.N), Russia’s Rosneft (ROSN.MM) and Lukoil (LKOH.MM), Italy’s Eni (ENI.MI) and some others.
In the past, the CPC export route provided the most attractive margin for Kazakh companies, but demand and prices for CPC Blend have been hit by Arab oil inflow and weak European fuel demand more than other regional grades, traders said.
CPC planed to increase CPC Blend oil exports in 2020 to 1.4 million barrels per day, due to rising output from Kazakhstan’s oilfields, as well as from Russia’s Lukoil oilfields in the Caspian Sea.
CPC pipeline and Transneft didn’t respond to our requests for comment. TCO, KPO, KMG and the Kazakh energy ministry declined to comment.
CPC BLEND FALLS
CPC Blend is the flagship Kazakh crude oil export blend sourced mainly from Tengiz, Karachaganak and Kashagan oil fields under production sharing agreements with foreign shareholders as key investors.
Light and rather sweet, CPC Blend traded with a premium to dated Brent until 2016, when its rising supply sent it to permanent discount against the benchmark. BFO-CPC
A recent inflow of crude oil from Saudi Arabia, slashed official selling prices for April and May volumes and evaporating fuel demand in Europe due to lockdowns to curb the spread of COVID-19 tipped CPC Blend differentials into freefall, traders said.
The price of Kazakhstan’s CPC Blend BFO-CPC dropped to a record low of minus $10 a barrel to dated Brent in April as global refineries cut runs and favour grades with lower yields of gasoline and jet fuel.
Kazakh state-owned Kazmunaigaz plans to redirect all its exports to the Russian route in May, according to one source familiar with the company’s plan. It was expected to load some 1.4 million barrels of CPC Blend, according to a preliminary loading plan for May. shows. This is, however, rather close to the transit volume Transneft’s pipeline system can accept, sources said.
“I doubt all requests for Russian transit can be fulfilled as capacity is limited. There is likely to be a competition”, a source familiar with Kazakh oil transit allocations via Russia said.