Six weeks before the EU embargo on Russian crude oil exports and the planned price cap on Russian oil enters into force, the global tanker and oil markets face increased uncertainty over who will ship Russia’s oil—and how—as of December 5. In September, Russia exported 7.5 million bpd of crude and refined products, according to estimates from the International Energy Agency (IEA). If those volumes are to continue flowing, Russia will have to either agree to sell its oil at or below the price cap as the G7 and the EU want, or find a large enough shadow fleet of tankers, insurers, and financiers willing to deal with Moscow.
Top Russian officials, including President Vladimir Putin and Deputy Prime Minister Alexander Novak, have already said that Russia will not sell its oil to countries that will have joined the price cap mechanism.
So, the tanker market and the oil market are left hanging and wondering if there will be a large enough alternative tanker fleet that will ship Russia’s oil to buyers willing to import Russian oil and products after the EU embargo on crude imports by sea enters into force on December 5 and the ban on products kicks in on February 5.
Some analysts say there will be a tanker shortage that will push oil tanker rates – and consequently oil prices – higher.
Others have noted in recent weeks increased vessel-buying from unknown entities in preparation for what they believe is Russia’s copycatting the oil export tactics of Iran and Venezuela, which have been exporting their crude under the radar for years now after the U.S. sanctioned their oil exports in 2018 and 2019, respectively.
“If you look at how many ships have been sold over the past six months to undisclosed buyers, it’s very clear that a fleet is being built up in order to transport this,” Christian Ingerslev, CEO at Maersk Tankers A/S in Copenhagen, told Bloomberg, commenting on Russia’s efforts to build a fleet of tankers and insurers. Maersk Tankers operates a fleet of 170 vessels, but none of them are being used to transport Russian oil.
According to Anoop Singh, head of tanker research at ship broker Braemar, “There’s been a sharp rise in the tanker trading since the war and in the run-up to the Dec. 5 deadline by undisclosed entities based in countries such as Dubai, Hong Kong, Singapore and Cyprus,” Singh told Bloomberg.
In a report last month carried by TradeWinds, Braemar said that Russia is increasingly using vessels previously known to have transported Iranian or Venezuelan oil.
“Export volumes from Iranian and Venezuelan crude have slid over the past few months in the same period where Russia to China volumes have picked up,” Braemar said.
To ensure more of its oil is flowing to buyers outside the G7 price cap, Russia is expanding its tanker chartering business. State-owned Rosneft, the biggest oil producer in Russia, has reportedly expanded its tanker chartering business to ease oil shipments for buyers, Reuters reported last week. Rosneft typically sells its oil at the port of loading, meaning the buyer has to hire tankers and handle freight and insurance costs. However, with the embargo looming, Rosneft’s customers are asking the company to handle delivery to the final destination, meaning the company will now assume freight and insurance costs.
Still, traders – including the biggest commodity traders – are still confused about how the price cap on Russian oil will be put into practice.
“We need buy-in from governments, and governments to guide us because it’s a bit of a minefield,” Vitol’s chief executive Russell Hardy told the APPEC conference in Singapore last month.
More recently, a U.S. Treasury official and industry representatives have admitted to Reuters that Russia could largely evade the price cap because it would likely have access to enough own tankers and transport and insurance services to ship its oil.
“In theory there is a big enough shadow fleet to continue Russian crude flows after Dec. 5,” Andrea Olivi, Global Head Wet Freight/Oil Chartering at trading giant Trafigura told Reuters.
By Tsvetana Paraskova for Oilprice.com
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