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🛢️ Russian Oil Closing Gaps

This week, Pakistan joined China and India as buyers of discounted Russian crude. Pakistan’s new orders are expected to provide a much-needed respite as the country attempts to avoid defaulting on debt obligations. 

Pakistani officials foresee the deal bringing up to 100,000 bpd of Russian crude into the country, likely placing some of its Middle Eastern partners on the sidelines. Last year, Pakistan imported 154,000 bpd, mainly from Saudi Arabia and the United Arab Emirates.

With this week’s announcement, Asian buyers have further secured themselves as Russia’s escape from Western embargoes and sanctions. Discounted oil cargoes brought countries like China, India, and Pakistan to the table, and now that they’re buying, discounts are diminishing.

In China, big buyers are eating up as much of the discounted crude as possible. 

April imports of Russian Urals-grade crude are expected to break records for the second month in a row, and large refiners are extending their reach into other Russian grades like the low-sulfur ESPO. 

Smaller, price-sensitive Chinese refiners are turning to different grades and different exporters. Because of sanctions, Iranian and Venezuelan cargoes are looking more favorable. 

Discounts for May deliveries of Urals crude against ICE Brent futures are down to $17/barrel from $27/barrel in February. According to Reuters, July deliveries have narrowed to below $10 against ICE Brent futures on a delivered ex-ship basis. 

Similarly, discounts for ESPO grades against ICE Brent futures are narrowing from $8.50/barrel in March to $5.50 for June deliveries. 

At the beginning of the week, a G7 official said the coalition plans to maintain the existing $60/barrel price cap for seaborne deliveries of Russian oil. 

The International Energy Administration (IEA) says the price cap has effectively limited Russia’s oil revenue. That effectiveness could change if Russia continues to bolster its Asian presence and can continue to secure non-Western transportation, insurance, and financing. 

Quick Shots:

🏭  EU Climate Policy Gets Parliament’s Nod

The European Parliament approved last year’s EU climate change proposals to revamp carbon markets and enact levies on high-carbon imports. 

If EU countries submit final approval of the policy in the next few weeks, European factories and power plants will lose free CO2 permits by 2034, and shipping emissions will join the market by 2024. 

After 2026, the legislation would also tax high-carbon imports like steel, cement, aluminum, fertilizers, electricity, and hydrogen. 

By 2030, EU lawmakers hope the reform will cut emissions by 62% from 2005 levels. 

🚢 Japan Imports Saudi Ammonia

Last week, we discussed meetings between the G7’s energy and climate ministers. The key takeaway was the coalition’s decision to amplify investments in renewables and slow investments in fossil fuels like LNG and coal. 

Japan was one of the countries that suggested alternative investments in transition fuels to secure energy stacks on the road to renewables. One such alternative was co-burning ammonia with coal to reduce carbon emissions from power generation. 

This week, Japan received its first delivery of low-carbon ammonia from Saudi Arabia to scale its ongoing study at JERA’s Hekinan plant. While the G7’s decision to bypass co-burning could change Japan’s outlook, the country plans to increase fuel ammonia demand to 3 million metric tons annually by 2030. 

🌎 BP’s Emissions Reform Gets Norwegian Backing

In 2019, BP announced plans to cut oil and gas levels by 40% by 2030. In February, the company pulled back its expectations, instead aiming for a 25% cut by the end of the decade. 

Activist groups immediately filed motions to force BP back into its original forecast. On April 27th, shareholders will vote to determine the company’s climate policy.

Norges Bank Investment Management (NBIM), the operator of Norway’s $1.4 trillion sovereign wealth fund and one of BP’s most prominent investors, said it would follow the board’s recommendation to vote against resolutions for tougher climate targets. 

🌽 Ethanol-15 Sales Delayed

This week, corn-dominant midwestern states had hopes of year-round higher-ethanol sales dashed by the EPA as the agency punted the policy change to 2024. 

Eight of the region’s governors have requested that the EPA allow waivers for 15% ethanol-gasoline (E15) blends this summer as they did in 2022. 

The EPA hasn’t taken that off the table. The agency restricts summertime sales of E15 over concerns that it heightens smog risk, but it’s unclear whether E15 increases smog more than E10 blends that are allowed year-round. 

Ethanol and oil firms share the same perspective about a year-round E15 rollout, saying a state-by-state restriction would create distribution challenges.