Oil Gains on Fears of Russian Supply Disruptions from Ukraine Attacks

Oil prices climbed more than 1% on Tuesday as Ukrainian drone attacks on Russian refineries and ports raised concerns over supply disruptions. Brent settled at $68.47 and WTI at $64.52, with Russia’s pipeline operator Transneft warning producers may need to cut output. Analysts noted that attacks on key export hubs like Primorsk could tighten global supply, with Goldman Sachs estimating 300,000 bpd of Russian refining capacity has been knocked offline. U.S. diesel futures surged 2.5%, outpacing crude, as potential damage to Russian refineries could boost demand for American exports. Traders are also watching the upcoming Federal Reserve meeting, expected interest rate cuts, and U.S. inventory data due Wednesday for further price direction.

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IEA Warns Accelerating Decline in Oil and Gas Fields Could Cut 5.5M bpd Annually

The International Energy Agency (IEA) reported that global oil and gas field decline rates are accelerating, requiring massive investment just to maintain current production levels. Based on data from 15,000 fields, conventional oil fields now decline at 5.6% annually and gas fields at 6.8%, leading to potential losses of 5.5 million bpd each year—equivalent to Brazil and Norway’s combined output. Natural gas losses have also risen to 270 bcm annually, up from 180 bcm in 2010. Nearly 90% of upstream investment is already used to offset declines rather than meet new demand, highlighting a growing strain on energy security. The report drew criticism from OPEC, which accused the IEA of discouraging investment with its 2021 call to end new oil and gas projects in pursuit of climate goals.

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OPEC+ to Debate Production Capacity Methodology Amid Uneven Member Output

OPEC+ delegates will meet in Vienna on Thursday and Friday to discuss how to assess maximum sustainable production capacities across its 22 members. The debate is contentious as countries like the UAE, which has boosted capacity, push for higher quotas, while African members with declining output resist, a dispute that led Angola to exit in 2024. The methodology will underpin the group’s 2027 production baselines, which set the levels for future cuts or increases. Recent output increases since April revealed disparities, with producers like Iraq and Russia struggling to meet targets, while Saudi Arabia and the UAE, backed by heavy investment, benefited. A final decision on the capacity framework will be made by OPEC+ ministers later this year.

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Iranian Oil Discounts Deepen in China as Sanctions Bite and Stockpiles Surge

Discounts for Iranian crude in China have widened to more than $6 per barrel below Brent as record stockpiles in Shandong and limited import quotas curb demand from independent refiners. U.S. sanctions have further pressured flows, with Washington recently blacklisting the Haiye Dongjiakou terminal, once handling up to 200,000 bpd of Iranian crude, forcing it to suspend operations. While imports at Dongjiakou have fallen 65% this month, shipments have been diverted to nearby terminals, including Huangdao, where Iranian arrivals are set to double in September. China continues to buy over 90% of Iran’s exports, averaging 1.43 million bpd this year, often disguised as Malaysian crude through ship-to-ship transfers. Record Shandong inventories of 293 million barrels have depressed refining margins, compelling Iranian suppliers to deepen discounts to offset sanctions-related risks.

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Drone Strikes Threaten Russia’s Oil Output as Key Ports and Refineries Damaged

Ukraine’s drone attacks have hit at least 10 Russian refineries and damaged major Baltic Sea ports, temporarily cutting Russia’s refining capacity by nearly 20% and shutting operations at Primorsk, which handles over 1 million bpd (10% of Russia’s output). Transneft, which manages over 80% of Russia’s oil flows, has warned producers it may restrict intake if infrastructure sustains further damage, raising the risk of forced output cuts. Russia, accounting for 9% of global oil supply, lacks significant storage capacity unlike Saudi Arabia, making it vulnerable to disruptions. Ukrainian President Zelenskiy described the strikes as “the fastest working sanctions,” while Western sanctions continue to redirect Russia’s crude toward India and China. Analysts from J.P. Morgan and Goldman Sachs warned that refinery outages and storage congestion could modestly reduce Russian production despite continued demand from Asian buyers.

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Plains All American’s Permian Pipelines Face Oil Quality Issues

Plains All American’s Permian pipelines to the Corpus Christi export hub in Texas are experiencing quality issues due to high mercaptan levels, exceeding 75 ppm. Starting October 1, Plains will impose a $0.50 per barrel fee on crude that fails to meet specifications. The company stated that its existing tariff provisions already cover off-spec barrels and will now be enforced. Gulf Coast refiners, particularly in Corpus Christi, may need alternative sources for Midland crude while the cause of the contamination is investigated. Plains’ pipelines transport about 2.1 million bpd of Permian crude to Corpus Christi and Cushing, Oklahoma.

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Sri Lanka Pushes Ahead with $3.7 Billion Sinopec Refinery, Eyes $3 Billion Expansion Project

Sri Lanka expects Sinopec to begin construction this year on a $3.7 billion refinery near Hambantota port, with planned capacity of 200,000 bpd and completion in about three years. The government is negotiating Sinopec’s request for greater access to the domestic fuel market, potentially raising its local sales quota from 20% to 40% of output. In parallel, Sri Lanka plans a $3 billion expansion of its state-run refinery near Colombo, boosting capacity from 38,000 bpd to 150,000 bpd within two to three years. Sinopec, along with companies from China, India, and Qatar, has expressed interest and must submit a letter of interest by September 26. The projects highlight Sri Lanka’s strategic role on key maritime routes and the geopolitical competition between China and India in the Indian Ocean.

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LR2 Tankers Likely to Face Headwinds Amid Refinery Maintenance

Refinery maintenance in the Middle East and India later this year is expected to put more crude on the water but reduce oil product exports, which will pressure LR2 tanker rates, according to BRS Shipbrokers. Up to 25–30 LR2-equivalent cargoes could be affected in the fourth quarter, with Saudi Arabia alone potentially losing 14 LR2-equivalent cargoes. India may temporarily switch from being a net exporter to importer of diesel and gasoline, reducing long-haul product availability to Europe. Meanwhile, MR and LR1 tankers could see some benefits from intra-regional trades in Southeast Asia and Europe sourcing fuel from the US Gulf. Additionally, new LR2 deliveries in the fourth quarter may further weigh on earnings, despite shipowners’ claims that most newbuildings will trade as aframax crude tankers.

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ABS Chief: LNG ‘Heavily Penalised’ Under IMO Decarbonisation Plans

ABS CEO criticized the International Maritime Organization’s (IMO) proposed decarbonisation framework, saying it undervalues LNG as a transitional marine fuel. He argued that the steep carbon-intensity reduction trajectory could exclude LNG and delay adoption of lower-carbon alternatives like bio-LNG and e-LNG, raising safety and investment concerns. Wiernicki emphasized that classification societies have a responsibility to highlight unintended safety consequences of regulatory decisions. His comments follow similar concerns from DNV Maritime and come ahead of the IMO’s Marine Environment Protection Committee meeting in London to finalize the framework. IMO Secretary General expressed confidence in adopting amendments introducing a fuel standard and pricing mechanism to support shipping decarbonisation. Details of the regulation will be clarified in upcoming IMO guidelines.