Azerbaijan&#39;s&nbsp;Socar hikes&nbsp;production at refinery in&nbsp;Turkey

Azerbaijani oil company Socar is increasing production at its new Star refinery in Turkey and buying sour crude from Russia at a time of tightening sour crude markets in the Mediterranean, according to sources. The state-run company has reached the midway point in its processing capacity of 200,000 barrels per day at the new refinery and could reach full capacity in April. Cuts in output from OPEC countries, along with US sanctions on Venezuela and Iran, have led to shortages of heavy and sour crude in Europe, leading to an increase in prices.

Azerbaijan’s state oil firm SOCAR is ramping up production at its new refinery in Turkey and is actively buying sour crude grades for the facility, additionally tightening the already tight sour crude market in the Mediterranean and Europe, crude traders and sources tell Reuters.

SOCAR’s oil refinery STAR is designed to have a processing capacity of 200,000 bpd, and it has already reached half that planned capacity, sources familiar with the refinery start-up told Reuters.

Full capacity could be reached as soon as next month, and SOCAR is actively buying Russia’s Urals sour crude grade at a time when supply of sour and heavy crudes in the Mediterranean and Europe is tightening.

OPEC’s production cuts and the U.S. sanctions on Venezuela and Iran have been limiting the availability of heavy and sour crude grades to Europe, where prices for sour and heavier grades, including Russia’s Urals, have recently shot up amid an increasingly tightening market.

The U.S. sanctions on Iran had already limited some of the heavy grade supply into Europe. Then with the new round of OPEC/non-OPEC cuts that began in January, Iraq’s Basra Light and Heavy—typically very popular among European refiners—have also been in short supply on the spot market in Europe as Iraq is diverting more barrels of Basra to the premium market for Middle Eastern producers: Asia.

To top off the sanctions on Iran and the OPEC cuts, the U.S. sanctions on Venezuela at the end of January further tightened the heavy crude market in Europe, and traders expect the market to tighten even more in the coming months.

The sanctions on Venezuela and on Iran, as well as OPEC’s cuts, have led to a huge imbalance between light sweet grades and heavy sour grades, especially in Europe, as Middle Eastern and other oil producers are targeting to keep their sales on the Asian market.

Due to tighter supply of medium and heavy sour crude oil, Middle Eastern benchmarks for sour crude grades traded higher than Brent Crude prices at the beginning of February in a rarely seen development in global oil prices.

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By Tsvetana Paraskova for Oilprice.com

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