Majors, Traders Poised to Slash Russian Oil Buying

Western majors and big trading firms are preparing to slash purchases of Russian oil by mid-May, when new EU sanctions come into force that outlaw transactions with state-controlled Rosneft, Gazprom Neft and Transneft.

The new measures represent the greatest obstacle yet to Russian oil exports, which had held up well in the first weeks after the Feb. 24 invasion of Ukraine, but have started to wobble as the number of willing buyers shrinks.

And the challenges for Russia will become even greater if the EU approves an embargo or some other measure directly targeting its oil in the coming weeks.

"May is going to be a very tricky month for Russian oil exporters because they are running out of alternatives," says a veteran Russian trader.

Up to now, EU sanctions against Russia have not directly targeted its oil, but the ban on transactions with certain state-controlled companies applies to its top two oil producers (Rosneft and Gazprom Neft) and its oil pipeline operator (Transneft).

Trafigura and Vitol

Singapore-based trader Trafigura has confirmed that it will stop all purchases of Russian crude by the mid-May deadline.

That is significant because the company has been a regular offtaker of Rosneft's barrels for more than eight years with current volumes exceeding 200,000 barrels per day, according to market sources.

Trafigura is "ceasing all purchases of crude oil from Rosneft in advance of May 15," a company spokesperson said, adding that it will also limit offtake of refined products from Rosneft to "essential fuels required by European customers."

It is understood that such essential fuel supplies amount to around 20% of current volumes.

Trafigura also holds a 10% stake in Rosneft's giant Vostok Oil project in the Arctic — acquired for €7 billion in late 2020, which is supposed to deliver 2 million b/d of crude oil by 2030. But it stresses that this is a passive, arm's length investment.

Another trading giant preparing to slash its Russian oil offtake is Vitol, which also has an alliance with Rosneft that includes a minority stake (3.75%) in Vostok Oil.

Vitol declined to comment on its ongoing business in Russia, but a statement from the company reported by several news organizations said it would cut volumes "significantly" in the second quarter and seek to halt them by year's end.

Vitol signed a contract with Rosneft last autumn to lift around 180,000 b/d of crude and products.

Data show it lifted several Rosneft Urals cargoes from Black Sea and Baltic ports this month, plus one or two Espo cargoes from the Far East port of Kozmino. Vitol is also a prolific lifter of Russian oil products from various terminals.

Shell, BP, Exxon and Total

Among the Western majors active in Russia, Shell and BP are both phasing out their Russian oil purchases and, like the traders, refraining from any new business.

Shell continues to lift the occasional crude cargo from its 50-50 Salym Petroleum joint venture with Gazprom Neft, with a 142,000-barrel cargo lifted from the Black Sea port of Novorossiysk in mid-April, according to shipping data.

Both companies have also throttled back purchases of Russian products.

Like Shell and BP, Exxon Mobil is exiting its upstream operations in Russia, but industry sources say it continues to lift Russian crude.

The company lifted two Gazprom Neft crude cargoes from the Baltic port of Primorsk in April, the sources say. Exxon did not immediately respond to a request for comment.

So far, TotalEnergies is the one Western major to resist calls to offload its Russian assets, which include its 19.4% interest in independent gas and LNG producer Novatek and a 20% stake in the Yamal LNG liquefaction plant.

But Total is committed to reducing Russian oil purchases, and said in March it will halt them "as soon as possible" and no later than the end of the year.

The company said it had already stopped all spot transactions involving Russian oil and gas from Feb. 25.

Total does have term contracts with Russian exporters and says these are mostly to supply its 230,000 b/d Leuna refinery in eastern Germany by pipeline. But it is working with the German government to import crude for that plant via Poland.

The company also lifts some seaborne Russian barrels, including around two cargoes a month of Urals crude from Gazprom Neft, according to market sources.

The upcoming EU ban on transactions with Rosneft and Gazprom Neft provides a loophole that would allow imports of oil and gas from those companies if they are deemed "strictly necessary."