Russian Oil Sales Drop But New Buyers Emerge

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Russia's oil exports are starting to decline as more customers shun its barrels although Moscow insists it would be able to find new customers and new export routes. Indeed, new names and destinations are emerging for Russian volumes, while the trade itself is getting murkier by the day.

Many market players expected that Russian oil exports would start declining after May 15, when EU sanctions prohibiting transactions with Russia’s Rosneft, Gazprom Neft and state pipeline operator Transneft came into force.

But data obtained by Energy Intelligence show that Russian exports to non-former Soviet Union states saw a decline already in the first half of May. Russian exports to non-FSU states alone, excluding transit from Kazakhstan, Azerbaijan and Turkmenistan, totaled 5.004 million barrels per day in May 1-15, a decline of almost 390,000 b/d from total April exports of 5.390 million b/d. The figures are still higher compared to February and March, however.

The lower exports are offset by higher refining throughputs of oil, which grew by 3.6% to 5.051 million b/d in May 1-15 versus April. Russia’s oil production is also growing, with May 1-15 figures showing a rise to 10.233 million b/d, reversing a nearly 1 million b/d decline in April.

Don't Go West

Russia's seaborne supplies in the west — via the Baltic and Black Sea ports — as well as deliveries via the Druzhba pipeline to Europe, saw the largest decline on May-15, which was slightly compensated for by higher pipeline shipments to China.

The decline in the west is due to the refusal by majors and big trading firms to take Russian spot cargoes. The decline along the Druzhba pipeline — a stumbling block in the EU's desire to introduce an oil embargo on Russian barrels — has also been expected. Germany and Poland, both strong supporters of the EU embargo, were taking less oil via the Druzhba in May, but supplies increased to landlocked Slovakia, the Czech Republic and Hungary, the main opponents of the ban.

What is becoming clearer by the day is that Russian oil exports are undergoing a massive restructuring. Speaking at a meeting devoted to the situation in the oil industry on May 17, President Vladimir Putin pointed to “tectonic” changes and to the fact that it would be impossible to continue business as usual in terms of energy flows. He reiterated that it was important to build new chains of deliveries to the end customers.

New Faces

Over the past months, Russian oil trading moved into the shadows and is expected to remain dark to allow exports to continue flowing. Market players say that although some regular customers would publicly avoid Russian barrels to meet sanctions, they would also be looking for ways to continue buying the crude, especially at huge discounts.

New names and new destinations will also appear. East Siberia-Pacific Ocean (Espo) blend crude out of Russia's Far East has already made its foray into the United Arab Emirates, while the list of new customers is expanding.

Rosneft has started exporting its crude via little-owned entities, as trading giants Vitol and Trafigura stop lifting its barrels in line with EU sanctions.

Trading sources say among the new entities buying Rosneft crude is Bellatrix Energy, a company which has chartered several tankers from Russia's Sovcomflot to ship Rosneft's Urals crude from Russia's Baltic and Black Sea ports to India and Turkey. Bellatrix has also handled cargoes of crude from Russian producers Surgutneftegas and Neftisa, according to the sources.

Another newcomer is Sunrise, which has no visible history of any previous dealings with Rosneft or any other Russian oil companies.

Before the new sanctions came into force, Vitol and Trafigura had been lifting as much as 500,000 b/d of Russian crude oil and refined products — mostly under offtake deals with Rosneft. Both companies had signaled they would slash volumes this quarter, with Trafigura saying it would halt all shipments of Russian crude by mid-May and keep exports of products to a minimum.

Chinese Customers

In the Far East, Rosneft has started selling Espo crude from the Kozmino terminal to state-controlled entities in China, with Unipec — the trading subsidiary of giant Sinopec — emerging as the top buyer. Sources say Unipec is due to take three Espo cargoes this month from Rosneft that would otherwise have been handled by Vitol or Trafigura.

Among the other state Chinese companies that have bought Espo this year are Chemchina — which merged with Sinochem last year — China National Offshore Oil Corp. and Zhenhua.

Another new face to emerge in recent weeks is Livna, a Hong Kong-based company that is now the largest offtaker of Espo blend with around eight shipments scheduled in May, all sourced from small Russian producers. Sources say Livna works with Paramount Energy, the Geneva-based trader that has been a dominant shipper of Espo blend for several years. Paramount has been handling up to 200,000 b/d of Espo crude this year, according to multiple trading sources.

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