Global oil markets are still trying to find a floor as oil prices are increasingly volatile. The EU’s expected ban on Russian oil imports, which will be put in place on December 5 is likely to shake up fundamentals. While the EU countries are looking to wean themselves off Russian crude, the appetite EU trading firms have for Russian oil remains undiminished. Bloomberg reported that Europe has been importing around 1 million bpd in the week ending September 2. The number is substantially higher than the 800,000 bpd average in August. Some however reiterated that it is below June levels, which was 1.28 million bpd. The ongoing high interest is not yet showing a real European-wide desire to bring the union’s Russian oil imports down in preparation for the December 5 deadline.
At the same time, Russia’s overall seaborne crude shipments, which are officially mainly heading to Asia, also remain strong. Overall, Moscow’s volumes are up 13% at 3.32 million bpd. At a time that Asian volumes are stable, Russian crude volumes to the Amsterdam-Rotterdam-Antwerp (ARA) region increased by 13%. Total Russian exports to the global market are estimated to have brought in around $167 million of revenue in the week of September 2.
Looking at the above data, the EU’s reliance on Russian energy is still extremely high, and cutting its energy ties with Moscow doesn’t seem an easy task at all. So, why is it so difficult to end Russian oil imports? As long as other producers are unable to fill the gap, European refineries continue to process large amounts of Russian Urals crude. As Ben van Beurden, Shell’s CEO, stated, the main driver for the EU demand for Russian crudes is the fact that OPEC producers at present are not able (or willing) to produce the needed volumes.
At the same time, it becomes more and more clear that not only official Russian crude volumes are heading to European markets. Unspecified volumes or blended Russian crudes in Asia are loaded onto tankers to European destinations. Japanese news site Nikkei reported that since the Russian invasion of Ukraine, 41 vessels have made ship-to-ship transfers of oil off the coast of Greece, involving Russian crude. In comparison, in 2021 this was only one vessel. Experts expect that after the December 5 ban, these ship-to-ship transfers will increase further. Refinitiv reported that Russia exported 23.86 million barrels of oil via ship-to-ship off Greece so far in 2022. In 2021 the volume was just 4.34 million barrels. Tracking these vessels, showed that 89 tankers arrived at ports, of which 41 at ports in Greece, Belgium, and elsewhere in Europe.
These developments show that there are still immense loopholes in the projected EU sanctions. If the EU really wants to hit Moscow’s cash cow, more stringent measures are needed. The blending of crudes is an old trick to masquerade the origin of the cargo. At the same time, it has been reported before that Asian and Middle Eastern countries are heavily involved in re-exporting former Russian crude volumes, under new specs or qualifications to Europe.
And it’s not just Asian countries that are complicit. Turkey, Egypt, and possibly Algeria, are possible gateways for Russian crudes to reach not only global markets, but especially European markets. Libya and Iraq are prime examples of countries that have tons of experience in circumventing international sanctions. Iran is at present still able to bring its crude and products to the market, even when U.S. sanctions are supposed to keep Iranian crude off the market. In the coming months, European leaders will need to decide if a normal Russian oil ban is as effective as they expect. 3rd party sanctions are needed to make sure that Russia isn’t simply exporting its crude to other destinations in the Middle East, Africa and Asia. Pretending that this won’t happen is not only foolish but also counter-productive.
By Cyril Widdershoven for Oilprice.com
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