From the perspective of the European crude market, the substitution of Russian crude cargoes is already underway. Russian Urals the flagship grade for exports, have dropped sharply in value as limited interest from European buyers has driven the grade’s discount to North Sea Brent to record levels.  With European buyers shying away from Urals, there are positives and negatives for some key alternative crude grades that could see or are already seeing a boost in demand in the coming months.

Crude Grade Producers

Crude oil comes in hundreds of different grades. These grades are valued differently by refiners based on their crude qualities.

Sweet crude oils are low in sulphur below 0.5%wt and require less processing to meet product specifications, while sour crude oils are typically above 1%wt sulphur. Light crude oils have a high API gravity >35 and will produce more of the value products such as gasoline, kerosene, and diesel. Heavy crude oils typically with API <26 produce more residual fuel which is low value.  Some of the more common crude oil grades, their quality and country of supply are:

Urals Substitutes

Urals occupies a unique position in European crude supply, given its physical characteristics (API and sulphur content), load/delivery location (Baltic Sea, Black Sea, pipeline) and production volume.

Given all these factors it is a tough challenge for a European refiner to find a good substitute for Urals. Stopping the flow of Urals crude to Europe will drive buyers to seek a variety of crude grades of varying volumes in countries such as Saudi Arabia, US, Libya, West Africa, Norway, and Oman.

Refiners also face significant challenges modifying plant configurations set for a specific feed blend.  The following crude grades and their characteristics are considered as potential Urals substitutes.

Azeri Light (Azerbaijan)

Azerbaijan’s Azeri Light crude grade has stable production and is already regularly imported to the Mediterranean at attractive pricing - differentials to north-sea crudes have widened recently. However, as over 80% of Azeri Light already goes to Europe, there may be little room to go higher.

WTI (US)

WTI is one of the fastest growing seaborne crude streams currently. Its low sulphur makes it relatively cheap to process and Europe in a relatively good position/location to take prompt cargoes.  However, it provides a lower middle distillate yield than Urals.

Mars (US)

Exports have resumed after disappearing in October but only to about 100-250kbpd. Mars is close in API gravity but higher in sulphur than Urals. Almost 90% of the seaborne exports head to Asian markets, i.e., South Korea, China, and India - though the latter two may purchase more Urals. European buyers would however be competing with US refiners that are seeking medium sour crudes, at a time where they are pivoting away from taking Russian crude and dirty feedstocks (Fuel Oil/VGO).

Es Sider (Libya)

The source of supply is favourably located in very close proximity to Mediterranean refiners.  This grade has very low sulphur content and yields high volumes of middle distillates and gasoline that are viewed favourably by refiners.  However, some 80% of Es Sider exports already head to Europe, so there is little upside for incremental flows.

Forcados (West Africa) 

Foracdos exports to Europe, this popular West African low sulphur content crude grade hit a 28-month high in February this year. Over 50% of West Africa’s exports head to Asia so there is upside potential for more European imports and its proximity to Europe compared to Middle East is an advantage. Reliability in production and export schedules are however a long running concern among European buyers.

Arab Light /Medium (Saudi Arabia)

Arab Light has the largest production base and Saudi Arabia is most capable of adding more oil to the market. Arab Light has a comparable API to Urals but very high sulphur content, not ideal if gas prices remain high.   Over 70% of Arab Light cargoes go to Asia suggesting some leeway to shift supplies to the European market.

Oman Blend (Oman)

The Oman Blend is probably the most similar grade to Urals based on API and sulphur content and it has large seaborne exports of about 900kbpd.  This crude grade almost always heads to Asia, so availability to Europe would require its main buyers (China, and to a lesser extent India) to reduce imports.

Iranian Light/Heavy (Iran)

A significant increase in oil supply (potentially up to 1Mbpd) could be added to the market quickly, if there is a change in sanctions imposed on Iran.  Iranian crude grade quality is very similar to Urals, only marginally higher in sulphur and API.Mediterranean refiners have historically been buyers of this grade, so there is some familiarity with it in refinery configurations. However, it is unclear if or how quickly any European buyers would load or be willing to receive Iranian crude cargoes.

Johan Sverdrup (North Sea-Norway)

More than half of crude lifted from Norway’s Mongstad terminal in March, mostly a grade called Johan Sverdrup, has been shipped to three normally regular buyers of Russian oil: Poland, Lithuania, and Finland. The proportion is the highest since the grade started production in 2019. Production from Johan Sverdrup is stable and growing and its sulphur and API qualities are close to those of Urals. 

Most of the European imports of Johan Sverdrup have discharged in the Netherlands or Turkey, suggesting that it would be a new crude for many refiners in the region. The Johan Sverdrup grade is popular among Chinese and South Korean refiners, so Europe faces a degree of supply competition.

Direct Urals Replacement

Having considered the characteristics of several potential substitute crude grades, it is clear that no single grade in relative proximity to the European market is likely to be a direct replacement for the Urals. However, it is important to note that both Northwest European and Mediterranean refiners are overall less reliant on Urals in 2022 than they were pre-pandemic. In February 2022, Urals accounted for around 8% of all crude arrivals into Northwest Europe and the Mediterranean (combined), down from a peak of around 14% in June-July 2019.

In the US however, Venezuelan oil would be a perfect substitute for Urals in large part because Russian oil has been a perfect substitute for Venezuelan oil. Much of the oil refining industry on the US Gulf Coast is built for medium/heavy Mesa grade produced by Venezuela, some, such as the Citgo refinery in Lake Charles, Louisiana, were built specifically for the Venezuelan grade.