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LUKOIL to restart Odessa oil refinery

By Finam

Lukoil says it is prepared to resume oil deliveries to its Odessa oil refinery, which were disrupted in early October by the Ukrainian state oil transport operator, Ukrtransnafta. The new route suggests using the Odessa-Brody oil pipeline, which has long been used in reverse mode for Russian oil exports through the Odessa seaport. Oil supplies to the Odessa refinery are expected to resume in early November and all the necessary documents have already been signed. The Odessa oil refinery stood idle throughout October, sustaining losses of around USD 3.5 million, according to Lukoil estimates.

The proposed new route for oil pumping means higher transportation costs, as a result of which the refinery could see its margins narrow a little. More important still, there is a considerable risk that the refinery could lose the new route as well in several months due to the long-standing Russian-Ukrainian conflict around the Odessa-Brody pipeline. Ukrainian authorities have been seeking to reverse the flow via the pipeline, thereby blocking access to the pipeline for Russian oil. Recent events show that the Ukrainian president has been especially active to this end.

Therefore, we underscore that the risk of another disruption in oil deliveries to the Odessa refinery is high for Lukoil. That said; the news about the planned resumption of oil deliveries may have a moderately positive effect on quotes for Lukoil shares.