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Buyers Steer Clear of Russian Oil Exports

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Russian crude oil exports are facing mounting logistical challenges even in the absence of direct sanctions, as refiners become increasingly reluctant to buy cargoes and shipowners are loath to commit vessels.

The reluctance largely reflects concerns of falling foul of the growing list of financial and other sanctions announced by the EU, the US and other nations — compounded by other risk concerns.

Prices for Russia's Urals crude grade have sunk to a deep discount, but freight rates have soared.

Add to that hefty premiums required by insurers to charter a crude tanker to Russia, and the degree of risk involved in lifting such cargoes far outweighs the potential benefits for many buyers.

"The Europeans and the Japanese are not really touching Russian crude at the moment," one trader said. "There is nothing to stop them. People are just being cautious and responding to the pressures from their governments."

The UK, meanwhile, has banned all vessels with connections to Russia from entering its ports.

Shipping data show a decline in the number of dirty tanker fixtures from Russia to Europe.

Crude tanker bookings from Russia to the US have come to a screeching halt, with no capacity booked beyond this week.

Skyrocketing Freight

In Worldscale (WS) terms, shipping rates for Aframax-size crude tankers on the Baltic-to-UK/Continent route have jumped from WS 100 to WS 480 in less than a week, according to shipping sources.

Beyond sanctions and security concerns, prices have also been driven up by the limited supply of ice-class vessels, which are needed to export oil from the Russian Baltic Sea ports of Primorsk and Ust-Luga at this time of year.

As part of a broader package of sanctions, the US has imposed financial restrictions on Sovcomflot, Russia's largest shipping company. Sovcomflot's fleet of 17 ice-class Aframax tankers is the largest in Northwest Europe.

Black Sea-to-Mediterranean shipping rates have soared on similar security concerns, as well as higher demurrage fees, which must be paid if there is a delay in loading or unloading a vessel.

"Freight rates have skyrocketed,” said one Mediterranean refiner. “We saw Maersk refusing to take Urals and have heard about other shipping firms thinking about it.”

Delays through the Turkish Straits are now running at around four days, in both directions.

Some shipowners have also jacked up freight rates to offset the higher cost of bunker fuel, which reflects higher crude prices.

"Owners are really milking this Black Sea premium. It's not just the rates. Demurrage, which was once $30,000-40,000 per day is now $200,000 per day," a trader told Energy Intelligence.

This means an 80,000-ton Russian crude cargo stuck for four days in the Turkish Straits would add about 30¢ per barrel each day to the cost of the oil it was carrying, adding up to a total of $1.40/bbl over the four days.

Looking for Buyers

"Traders, majors and others are full of Urals. They are calling us to push Urals — they don't know where to put it. Discounting is in double digits," the Mediterranean refiner said.

A recent spot Urals tender from Russian oil producer Surgutneftegaz for 200,000 tons of Urals crude failed to find a buyer, although the same cargo would typically be snapped up under more normal circumstances.

Urals has been stuck at a discount of around $11/bbl to dated Brent since last week, owing to the absence of fresh bids for the grade.

Analysts believe the steep discount will eventually attract buyers, at least those willing to pay a premium to load at Russian ports.

Indian refiner Indian Oil Corp., for example, bought 2 million bbl of Urals crude for the first time in two years after the differential crashed last week.

Chinese trader Unipec is also rumored to be a potential buyer of Urals – although, for now, it appears to have held off.

In the Asian market, many players are wary about Russian spot crude, especially if the sellers are Russian.

Traders there with Russian crude to sell have resorted to unusual ways of helping buyers to finance their purchases.

Some are believed to be offering open credit — a tactic used by Iran in the past to work around Western sanctions.

Topics:
Oil Tankers, Oil Prices, Crude Oil, Oil Supply, Sanctions, Military Conflict, Ukraine Crisis
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