Washington’s blacklisting of leading oil producers Rosneft PJSC and Lukoil PJSC last month is seen as the current administration’s most aggressive step to date in US President Donald Trump’s effort to increase pressure on the Kremlin over the war in Ukraine. The US Treasury Department announced earlier this week that, given the decrease in demand for key Russian oil types and the applied discounts, the measures have already achieved a success.
With the restrictions coming into force, Indian refineries have begun seeking substitute supplies and started booking oil tankers to receive cargo from the Middle East. This situation has pushed freight rates on that route to near a five-year peak. Meanwhile, traders are closely tracking the final buyers of Lukoil and Rosneft crude oil already at sea.
ING Groep NV Head of Commodities Strategy Warren Patterson, in his assessment on the matter, stated, “Russia’s export flow continues, but it hasn’t reached its destinations yet.” Patterson added, “If this situation continues and it eventually starts to build up, we could begin to see supply drop. This would be a concern for the markets.”
According to data from the analytical firm Kpler, approximately 48 million barrels of crude oil belonging to Rosneft and Lukoil (mostly of the Urals and ESPO types) are currently in transit or beginning to load. This amount includes about 50 tankers heading towards China and India, as well as other tankers scattered from the Baltic to the South China Sea, with unclear destinations or heading to smaller ports, as intermediaries withdraw from the trade.
As Russia is determined to maintain its oil flow, Moscow has prioritized loading. According to ship-tracking data compiled by Bloomberg, seaborne shipments have been maintained at a significant volume, hovering around 3.4 million barrels per day. On the other hand, benchmark prices have so far largely ignored the impact of the latest restrictions.
However, not all of these barrels may find a definitive buyer, even in Asia’s largest markets. China and India have taken the lion’s share of Russia’s exports since the 2022 invasion of Ukraine and maintain close ties with Moscow. Nevertheless, as the US increases pressure on any player facilitating Russian exports, both countries are wary of being entangled in upcoming secondary sanctions. The scope of these restrictions and Washington’s willingness to enforce them will determine how much oil reaches refineries.
Adam Lanning, senior tanker market analyst at shipbroker SSY, commented, “This is painful, but it’s a pain that will only last three or four months.” Lanning stated, “What we are likely to see in the coming months, as we have seen before, is the markets starting to adapt and finding loopholes to import that crude oil without being subject to scrutiny.”
The increasing pressure on Russian exports has already encouraged buyers to turn to mainstream oil types. But the coming days will test this resolve.
Two ships loaded with Urals that had changed their routes (U-turn) due to sanctions recently resumed their journeys, indicating they are heading to India.
It seems difficult for these ships to reach their final buyers before the end of the wind-down period on November 21st.
The vessel The Spirit 2, loaded with 730,000 barrels of Urals from Rosneft, changed its course and began waiting in the area after passing through the Suez Canal in early November while heading towards Asia. According to ship tracking data, over the weekend it set sail south again, listing India as its destination.
Another Aframax, Furia, which made a sudden turn in the Baltic Sea at the end of October, passed through the Suez Canal this week and set off for India. According to data, it is carrying approximately 730,000 barrels of Urals crude oil purchased from Rosneft.
However, other examples are already showing the first signs of disruptions that Western sanctions could cause.
According to ship tracking data, the vessel Cindy, located in Russia’s Far East, loaded approximately 770,000 barrels of ESPO from Kozmino in early November but had no clear destination. The vessel is now headed towards the offshore waters of Singapore and Malaysia, where Iranian and occasionally Russian oil is transferred between tankers to conceal its origin.
The Fortis, carrying 720,000 barrels of Urals crude from Rosneft, is heading towards Yeosu, South Korea, a popular area for ship-to-ship transfers, after performing a rare transfer off the coast of India. The Fortis was previously expected to dock at Ningbo, China, before changing its destination to Yeosu.
Source: Bloomberg
