Smoke billows in Ryazan, Russia’s Ryazan region, after a Ukrainian SBU drone strikes an oil refinery during Russia’s offensive against Ukraine. This screen was taken from a video obtained by Reuters on March 13, 2024.
Video obtained by Reuters | via Reuters
Ukraine’s capabilities are growing and the range of its drones has been demonstrated to increase significantly. Earlier this month, Kiev attacked Russia’s third-largest refinery Taneko, which is up to 1,300 kilometers, or about 800 miles, from the front lines, according to JPMorgan.
The bank said Ukraine is increasingly using drones equipped with AI to help navigate weapons and evade interference.
“AI guidance also provides strike accuracy, reducing the impact of strikes by targeting specific areas, such as distillation columns,” Natasha Kaneva, head of global product strategy at JPMorgan, told clients in an April report. “We need Western technology to repair distillation columns.” “This makes repairs expensive and often requires equipment that the state cannot produce.”
U.S. Defense Secretary Lloyd Austin made it clear on Tuesday that the Biden administration was concerned about the attack, an unusual public airing of disagreements with U.S. allies in Kiev.
“Certainly, such an attack could have ripple effects on the global energy landscape,” Austin told the Senate Armed Services Committee. “Frankly, I think it would be more advantageous for Ukraine to pursue tactical and operational objectives that could have a direct impact on the current fighting.”
The United States has asked Ukraine to halt attacks on Russian energy infrastructure, concerned about soaring oil prices and the possibility of inciting retaliation from Russia, three people familiar with the talks told Financial Times last month.・Told the Times.
The loss of Russia’s refining capacity could get even worse as Ukraine builds a full-fledged drone industry and aims to produce 1 million units domestically this year, according to a JPMorgan report. According to the report, if Kyiv were able to extend the range of its drones to 1,500 kilometers (about 932 miles), it could attack 21 oil refineries with a refining capacity of more than 4.4 million barrels per day.
Energy expert and founder John Kilduff said: “There is scope for this to become a bigger issue, because we have come to expect Russian supplies to reach global markets, and that allows us to “It allows supplies to go elsewhere.” Partner at Again Capital.
The introduction of AI drones will also have far-reaching implications for global energy markets, said Bob Brackett, senior research analyst at Bernstein. Brackett told clients in a Friday memo that drones are cheap compared to the millions of dollars in damage they can cause and could potentially empower non-state actors to counter superior combat forces. He said that there is.
“These drones could easily and asymmetrically disrupt global maritime trade,” Brackett wrote, warning that it’s not just oil exporters like Russia that need to be concerned. Oil-importing countries such as China and India will now have to worry about disruptions in crude oil distribution due to drone attacks, he said.
Ukraine’s drone strike operation comes at a time when tensions are heating up in the Middle East, with OPEC members Iran and Israel on the brink of direct confrontation.
U.S. crude oil has risen nearly 20% this year, while global benchmark Brent crude has risen 17% as wars intensify in the Middle East and Eastern Europe amid rising oil demand and tight supplies. Gasoline futures have risen about 33% since the beginning of the year.
Rapidan Energy President Bob McNally said drone attacks are not a big problem for oil prices at this point, as refinery attacks mainly affect Russian diesel production, where the market is already oversupplied. He said no.
However, Russia is also a major exporter of a gasoline raw material called naphtha. McNally, who served as a senior energy official in the George W.
Goldman Sachs said in a research note last month that the strike was bullish for diesel prices, but the impact on crude oil was mixed. Outages could lead to reduced demand for oil from refineries, leading to bearish prices. But Goldman said the market is concerned that Ukraine will increasingly damage oil production and transportation infrastructure, weighing on Russia’s crude exports.
Bart Melek, head of product strategy at TD Securities, said the strike could have an indirect impact on the oil market. Melek said that as Russia’s fuel exports decline due to the attacks, countries that rely on those exports will have to source fuel from refineries in other jurisdictions. He said these refineries need more crude oil to meet demand that could strain oil supplies.
Russian production is already a problem for the Biden administration. The Russian government has pledged to cut oil production and exports by a further 471,000 barrels per day in the second quarter to meet its OPEC+ commitments.
These production cuts could push Brent oil prices to $100 by September, putting pressure on the Biden administration just before the presidential election, according to a JPMorgan report last month.
The investment bank expects U.S. gas prices to reach $4 a gallon by May, the highest level since the summer of 2022.
“There are few issues more frightening for a sitting American president in an election year than rising gas prices,” Rapidan’s McNally said.
