Disruptions in the oil market are beginning to directly affect the security of crude oil supplies to Poland. Orlen is looking for replacement cargoes, including in the North Sea, after some shipments from Saudi Arabia were canceled following attacks on the country’s export infrastructure. Minister of State Assets Wojciech Balczun says fuel reserves remain untouched, but at the same time describes the current market situation as exceptionally difficult and unpredictable.
Poland’s fuel system is entering a period of heightened risk at a time when several elements of the global oil market are no longer functioning as they did previously. The problem today is not only the amount of crude available, but also the ability to physically deliver it to refineries on time, via the appropriate route, and at a price that will not force a sharp increase in refining costs. Orlen is far more diversified than it was before moving away from Russian oil, but the scale of the current disruptions shows that even a major importer can be forced to quickly restructure part of its purchasing portfolio.
Wojciech Balczun said on Wednesday on Polish Radio’s First Programme that Orlen has safeguards and diversified sources of supply, but that the current situation requires particular caution. His comments primarily reflect the fact that the market must respond simultaneously to disruptions at several key points in the global oil supply system, while the availability of alternative cargoes is limited.
– Orlen is relatively well protected and diversified, which does not mean that we can rest on our laurels, because the situation is ‘extremely serious’; we have not experienced such an exceptionally difficult and unpredictable situation for many years or even decades – Wojciech Balczun said.
The minister stressed that fuel reserves remain untouched, but their current level does not mean that the problem can be considered solved. Reserves are primarily important as protection against supply interruptions. Under normal conditions, refineries operate thanks to a regular inflow of crude purchased under forward contracts as well as through current transactions. If subsequent shipments are delayed or canceled, alternative cargoes must be found quickly, their transportation arranged, and the characteristics of the crude matched to the refinery’s technological capabilities.
– Reserves remain untouched, but everything will depend on what the coming weeks bring, on how successfully we can maintain current deliveries and whether we can secure alternative suppliers – the minister said.
This is where the spot market becomes important. It is the segment in which crude oil is purchased for relatively rapid delivery, rather than being sourced under previously agreed long-term schedules. Under normal circumstances, such purchases can be one of the tools used to optimize supplies. However, when several countries are simultaneously trying to find replacement barrels, the spot market becomes a place of competition for a limited number of available cargoes.
– Orlen is doing this; oil is being bought on the spot market – Balczun said.
The problem is that other buyers are currently using a similar strategy. Europe has to replace some of the crude that cannot be received according to the original schedule, and every additional cargo purchased at short notice increases pressure on physical crude prices. Under such conditions, the price of a futures contract does not necessarily correspond exactly to how much must be paid for a specific barrel that is immediately available at a particular port.
– No responsible person can say today what the future will bring, but we are doing everything we can to ensure that the stability of supplies is maintained – Wojciech Balczun said.
Saudi Aramco accounts for a large share of Orlen’s supplies
One of the most important problems for the Polish company is the situation in Saudi Arabia. Saudi Aramco has become one of Orlen’s key crude suppliers in recent years, and according to information cited by Reuters, it currently accounts for around 40 percent of the crude processed at the company’s refineries. This means that disruptions to Saudi exports do not automatically mean that Polish refineries will shut down, but they may force rapid adjustments across the entire supply portfolio.
Reuters reported that Saudi Arabia had informed European customers about the cancellation of some oil cargoes scheduled for late September. At the same time, loading operations at the port of Yanbu on the Red Sea were suspended. This is significant for European buyers because this route allowed Saudi Arabia to ship some crude while bypassing the Strait of Hormuz.
According to sources cited by Reuters, Orlen is seeking replacement cargoes in the North Sea and from other sources. In practice, this means that part of the delivery schedule has to be restructured because crude from different regions of the world is not identical in terms of its characteristics. A refinery must take into account, among other things, the grade of crude, its properties, and the profitability of a particular refining process. Buying a replacement cargo is therefore not simply a matter of finding any tanker carrying crude oil.
Orlen itself did not confirm details of specific transactions.
– We do not comment on details concerning specific commercial transactions or ongoing purchasing procedures – the company said in response to questions from the Polish Press Agency about reports that it was seeking replacement supplies.
At the same time, the company said that it was monitoring the situation on the global market and adjusting its supply portfolio to market conditions.
– It continuously monitors the situation on the global oil market and manages its supply portfolio on an ongoing basis in order to ensure the continuity of refinery operations – Orlen emphasized.
For the Polish fuel market, the continuity of refinery operations is precisely what is crucial. A refinery cannot operate for long without regular crude supplies because its operations are based on a continuous refining process. If one supply route is restricted, the task of the trading department is to replace it with another source in such a way that the facilities can continue operating and products such as gasoline, diesel, jet fuel, and petrochemical components can continue to reach the market.
Pipeline attack changed Saudi Arabia’s situation
The significance of recent events stems from the fact that Saudi Arabia had for many months relied on infrastructure that allowed it to bypass what is currently the most problematic point on the global oil trade map: the Strait of Hormuz. The East-West Pipeline, also known as the Petroline, transports crude from oil fields in the eastern part of the country to Yanbu on the Red Sea coast.
The route is approximately 1,200 kilometers long and allows crude to be transported toward ports located outside the Persian Gulf. This is of enormous importance when transportation through the Strait of Hormuz is seriously disrupted. A tanker loading crude in Yanbu can then sail west without having to pass through the strait located between Iran and Oman.
Following the attacks, Saudi Arabia temporarily suspended operations on this strategic pipeline. According to Reuters, the route had previously allowed around 4 million barrels of crude per day to be transported, equivalent to approximately 4 percent of global supply. Such a large volume means that even a temporary reduction in the pipeline’s operations immediately affects market participants.
The Saudi Ministry of Energy announced the suspension of the pipeline following attacks that affected infrastructure in the Riyadh and Medina regions. In the following days, different estimates emerged regarding the time needed to restore the flow. Some sources spoke of several weeks, while U.S. Energy Secretary Chris Wright estimated that the facility could be restarted much sooner.
This difference in forecasts is hugely significant for the market. If the disruption lasts a few days, buyers may try to use existing inventories and individual replacement cargoes. If the problem continues for weeks, larger volumes of crude will have to be permanently redirected from other regions of the world. Competition for available supplies then becomes considerably stronger.
Europe begins competing for the same barrels
Information about the cancellation of some Saudi shipments emerged at a time when European buyers were already looking for alternatives to crude from the Middle East. As a result, several sources of supply are increasingly being treated as substitutes by a larger number of customers at the same time.
One of the regions attracting the attention of European refineries is the North Sea. The problem is that the ability to rapidly increase supplies from this region is limited. If many refineries try to purchase additional cargoes simultaneously, sellers may demand higher prices, while physical crude intended for prompt delivery can become significantly more expensive than before.
Reuters reported that prices for physical crude cargoes in Europe had exceeded $130 per barrel, while the price of the Brent futures contract remained lower. Such a difference is a signal that the problem concerns not only investors’ expectations regarding future prices, but also the availability of specific supplies needed by refineries here and now. For Orlen, this means that finding a replacement cargo may be possible, but purchasing it may take place under much more difficult pricing conditions.
Pressure on prices matters for the entire fuel supply chain. Crude oil is a basic production cost for fuels, but the price at the pump does not respond mechanically to every change in the price of a barrel. It is also affected by the dollar exchange rate, refining margins, transportation costs, taxes, and conditions in the market for finished products. A prolonged supply restriction can, however, increase costs at several stages simultaneously, raising the risk of higher fuel prices for end consumers.
Oil is facing increasing problems with transportation routes
The disruptions are not limited to the Saudi pipeline. The entire region is currently under pressure from events that are making traditional transportation routes more difficult to operate. For many months, one of the main problems has been the Strait of Hormuz, through which a significant share of global oil and petroleum-product trade normally passes.
An alternative for part of Saudi Arabia’s exports was the East-West Pipeline and the port of Yanbu. When this infrastructure was taken offline following the attacks, Saudi Arabia was forced to look for other ways of bringing crude to market. Reuters reported on September 16 that Saudi Aramco had begun offering larger volumes of crude to Asian buyers through transshipments carried out in the vicinity of the Omani port of Sohar. Such solutions show that producers are attempting to adapt logistics to wartime conditions, but they do not mean that the market has returned to normal operation.
At the same time, the situation around the Red Sea is deteriorating. At the beginning of September, the Houthis launched an offensive in Yemen, as a result of which they expanded their control over parts of the Red Sea coastline. Among other locations, they seized the port of Mokha near the passage between the Red Sea and the Gulf of Aden, as well as at least one island in the Hanish Archipelago located near the Bab el-Mandeb Strait.
Bab el-Mandeb is an important point for transportation between the Red Sea and the Indian Ocean. For a tanker sailing from the Persian Gulf region to Europe, the security of this route can determine whether it is possible to use the route through the Red Sea and the Suez Canal or whether the vessel will have to take a much longer route around Africa. A longer route means more days of vessel operation, greater fuel consumption, higher insurance costs, and reduced tanker availability.
Poland is better prepared, but not immune to a global crisis
For Poland, diversifying sources of crude oil remains one of the most important safeguards for the fuel system. Orlen is no longer dependent on a single supply route in the way it was before changing its purchasing model and moving away from Russian crude. The company can use crude from different regions, while access to maritime terminals makes it possible to bring cargoes into the country from outside the Persian Gulf region.
The current events nevertheless demonstrate the limits of such diversification. The ability to purchase oil from multiple sources does not mean that all of those sources can provide any amount of crude at any given moment. The market has a limited number of tankers, limited port capacity, specific transshipment capabilities, and a limited number of available cargoes. When Europe, Asia, and other regions are simultaneously trying to replace disrupted supplies, alternative sources quickly become the subject of competition.
This is why Balczun’s comments about the need to secure supplies should primarily be understood in the context of the coming weeks. Reserves can cushion short-term problems, but they cannot replace a normal supply chain for an extended period. For Orlen, the key challenge will therefore be maintaining continuous supplies to its refineries while making use of different grades of crude, different suppliers, and different transportation routes.
The market is also signaling that the problem may be broader than a single infrastructure failure. If the East-West Pipeline returns to operation quickly, some of the current pressure may ease. However, if problems with Saudi exports coincide with restrictions in the Strait of Hormuz, threats to shipping in the Red Sea, and further disruptions in other oil-producing countries, European buyers may have to compete for a limited number of available cargoes for an extended period.
Wojciech Balczun is not predicting how the situation will develop, which is precisely why he emphasizes the importance of securing supplies on an ongoing basis. Poland now has significantly more options than it would have had if the entire system depended on a single supplier and a single transportation route. At the same time, the current crisis demonstrates that energy security does not end with finding an alternative producer. It is equally important whether, at a time of crisis, safe shipping routes, available tankers, functioning ports, and a sufficient number of physical cargoes actually exist that can be delivered to refineries.
Current Reuters reports confirm the cancellation of some Saudi shipments to Europe, Orlen’s search for alternative cargoes, and problems affecting the East-West Pipeline.
