Insights 
VT 
November witnessed a record surge in Ukrainian drone strikes targeting Russian energy infrastructure, impacting refineries and Black Sea tankers. This led to a reduction in daily processing to approximately 5 million barrels, down from 5.3 to 5.5 million barrels earlier in the autumn.
Ukraine executed more assaults on Russia’s energy facilities in November than in previous months. Drones attacked Russian refineries at least 14 times. Two tankers in the Black Sea were targeted, along with another tanker that formerly transported Russian oil.
Black Sea Terminal and CPC Exports
A mooring facility at a Black Sea oil terminal, essential for Caspian Pipeline Consortium (CPC) exports, was destroyed by a drone attack. Kazakhstan had recently averaged 1.5 million barrels per day to the terminal via the CPC pipeline.
The incident is exacerbated by a second mooring being inoperable due to maintenance. Despite this setback, loading operations at the sole remaining mooring have recommenced.
We see the record number of attacks last month as a clear signal of escalating supply risk. The drop in Russian refinery processing to 5 million barrels per day directly tightens the market for refined products like diesel. This suggests an upward pressure on prices as we head into the winter months.
Geopolitical Risk and Market Impact
With Brent crude futures already trading above $92 per barrel in the first days of December, the market is sensitive to any supply shocks. This situation feels similar to the price volatility we saw in 2022, where geopolitical events added a significant risk premium to oil prices almost overnight. Considering the recent OPEC+ decision to maintain current output levels, these disruptions from Russia could have an outsized impact.
We believe purchasing near-term call options on Brent and heating oil futures is a prudent strategy to capture potential price spikes. The increased frequency of these attacks suggests implied volatility will likely rise, making options more expensive soon. This makes acting in the coming weeks critical to get ahead of the market repricing this new level of risk.
We are also looking closely at crack spreads, particularly for diesel, as refinery outages directly impact the supply of refined products more than crude oil itself. Going long on the “crack” could be profitable, as the value of these products may rise faster than the underlying crude oil price. The latest data from early December shows crack spreads have already widened by over 5% since mid-November, and we expect that trend to continue.
The damage to the Caspian Pipeline Consortium’s export terminal, which handles about 1.5 million barrels per day, introduces another layer of uncertainty for crude supply. While loadings have resumed, operating with only one of three mooring points creates a significant bottleneck and a target for future attacks. This vulnerability specifically threatens seaborne crude heading to Europe, potentially causing the Brent-WTI spread to widen.
