Despite the fact that VLCC freight rates remain at balanced levels on an annual basis -with Fearnleys recording last week 63,500 /day for conventional VLCCs and 72,000 /day for newer technology ones- indications show that the market is entering a phase of intensifying volatility.
According to a Signal analysis, the company’s latest data show that the 21-day moving average of flows from Russia to India has decreased by 30% compared to October levels – a trend expected to intensify from December, after the activation of US sanctions against the two major Russian companies.
Although Indian refining groups rushed to secure cargoes before the deadline, the period of abundant Russian deliveries appears to be reaching its end.
Reliance Industries has already terminated the use of Russian crude at the SEZ export refinery in Jamnagar, while increased compliance requirements for insurance and banking transactions are raising the operational risk for all importers.
Although Indian Oil Corporation secured five cargoes of ESPO blend crude (i.e. a specific blend of Russian crude) for December arrival, the volume -approximately 3.5 million barrels- remains clearly lower than pre-sanction levels.
The future availability of Russian crude for India now depends almost exclusively on the ability to find non-sanctioned intermediaries, a fact that limits stabilization prospects.
At the same time, structural imbalances in VLCC supply from the Arabian Gulf and West Africa are exacerbating market volatility, as ton-days are increasing but ton-miles remain restrained – an indication that the market is now determined more by supply constraints, rather than the demand side.
Uncertainty is further reinforced by oil price forecasts: JPMorgan warns of a potential structural oversupply that could push brent to 57 dollars in 2027, or even to 30 dollars in an adverse scenario.
In this environment, some Indian banks are considering reinstating financing for Russian crude only under strict compliance preconditions, which include payments in alternative currencies -such as the UAE dirham or the Chinese yuan- and thorough vetting of all counterparties to avoid any involvement with sanctioned entities.
