The International Energy Agency announced on Friday that the restrictions imposed by the European Union and the Group of Seven on Russian oil exports have led to a reshaping of oil flows, with Asian refineries increasingly turning to lower-priced Russian crude. This partially explains the recent decision by "OPEC+" to further cut production, as it also cited rising energy costs needed to lower the sulfur content in crude for cleaner fuel production, a process known as hydrotreating.
In its monthly oil market report, the agency revealed that with over three million barrels per day of Russian crude reaching the region, Asian refineries' appetite for medium-sulfur crudes from the Middle East may diminish. The rapid shift in global crude trade flows may somewhat clarify "OPEC+"'s recent decision to cut production.
The IEA noted that European refineries have not rushed to turn to medium-sulfur Middle Eastern crude as an alternative comparable in quality to Russian crude. Instead, they have adjusted their crude mix and preferred to source lighter, lower-sulfur crudes, such as those produced by the United States.
The agency added that, unlike Asian refiners who benefited from significant discounts on Russian crude, European refiners have not received any price incentives to favor Middle Eastern grades.
Many producers in the OPEC+ alliance, which includes members of the Organization of the Petroleum Exporting Countries and other allies, notably Russia, announced voluntary oil production cuts earlier this month amounting to 1.7 million barrels per day, raising the total cuts by the alliance to 3.7 million barrels per day until the end of this year.
