Russia Set to Resume Oil Flow to Central Europe as Fee Paid

(Bloomberg)

Russia is getting ready to resume oil flows through a pipeline to central Europe after Hungary’s sole refiner stepped in to resolve a problem over the payment of a transit fee to Ukraine.Crude flows via the southern leg of the Druzhba link may reach Slovakia by the end of Wednesday, Transneft PJSC spokesman Igor Dyomin told Bloomberg on Wednesday. The Russian crude-pipeline operator has received a confirmation from Ukraine that it’s ready to resume oil transit, he said.

The southern leg of the Druzhba pipeline, which delivers Russian crude through Ukraine to Hungary, Slovakia and the Czech Republic, halted operations on Aug. 4 after European banks refused to transfer a payment from Transneft to its Ukrainian counterpart Ukrtransnafta JSC amid EU sanctions.

Once restarted, the flows will resolve one of the many energy-supply risks faced by Europe. If the shutdown had been prolonged, Hungary could have suffered road fuel shortages. However, the continent is still grappling with constrained supplies of Russian natural gas and low river levels that are hindering the distribution of coal and diesel.

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Brent crude, which initially jumped on Tuesday when the Druzhba halt was announced, dropped 1.5% to $94.85 a barrel as of 12:11 p.m. in London.

The dispute was resolved after Hungary’s MOL Nyrt, which also owns Slovakian refiner Slovnaft, paid the transit fee to Ukraine on Wednesday. The halt of the Druzhba pipeline had put renewed pressure on already-tight fuel supplies in Hungary, prompting warnings against panic buying.

The return of the southern Druzhba flows should prevent the worsening of what was already a tight market for fuels in Central Europe at the start of refinery maintenance season. Germany’s Bavaria region, Austria and Switzerland have also been grappling with curtailed supplies, exacerbated by a squeeze in deliveries via the Rhine river, which is forecast to become impassable to shipping within days due to a drought.