SINGAPORE – Trade of Russian oil for March loading in Asia, the region’s top buyer, has stalled due to a widening price gap between buyers and sellers in China. This gap emerged after the cost of chartering tankers, unaffected by U.S. sanctions, surged, according to traders and shipping data.
New U.S. sanctions, imposed on January 10 targeting Russia’s oil supply chain, caused freight rates for tankers to skyrocket, as buyers and ports in China and India began avoiding vessels subject to sanctions.
Offers for Russian ESPO Blend crude exported from the Pacific port of Kozmino rose to premiums of $3-$5 a barrel above ICE Brent on a delivered ex-ship (DES) basis to China. This increase came after freight rates for Aframax tankers on the route surged by several million dollars, according to three traders familiar with the matter.
Before these sanctions, strong winter demand and rising prices for competing grades, including Iranian oil, drove spot premiums for ESPO Blend crude to China up to nearly $2 a barrel, the highest since the Ukraine war started in 2022. This was a stark contrast to the previous discounts, which had reached as much as $6.
In India, Bharat Petroleum Corp Ltd’s finance chief reported last week that no new offers for March delivery had been received, and the company expects fewer cargoes for March compared to January and December. India typically receives offers for Russian crude around the middle of each month.
Russian crude is expected to account for 36% of India’s and nearly 20% of China’s 2024 imports.
The new sanctions target tankers carrying around 42% of Russia’s seaborne oil exports, primarily to China, according to analytics firm Kpler. However, sanctioned tankers are still gradually unloading oil in China and India during a waiver period.
The U.S. clarified to India that tankers carrying Russian oil must discharge by February 27 under the sanctions, with payments for oil on affected ships to be cleared by March 12, as stated by India’s oil secretary, Pankaj Jain.
PORT DELAYS
In China, newly sanctioned tankers are facing delays when offloading oil, despite meeting the waiver requirements. Three tankers discharged Russian ESPO and Sokol crude between January 15-17, while the tanker Olia offloaded its ESPO cargo at Yantai port in Shandong on Sunday after nearly three weeks at sea, according to LSEG data.
Tanker Huihai Pacific is still waiting to discharge at Tianjin after loading its ESPO cargo on January 5, while Viktor Titov is heading to Qingdao after loading Sokol crude on January 6, as per LSEG data.
In India, nine newly sanctioned tankers have discharged oil since January 10, with several carrying Urals crude, according to LSEG data.
The U.S. sanctions and a ban imposed by China’s Shandong Port Group early this month are expected to lead to a loss of up to 1 million barrels per day of crude supply for refineries in Shandong province in the short term, according to consultancy FGE. Independent refiners are scaling back operations due to the higher cost of alternative supply, with FGE expecting a 400,000 bpd cut in refining activity by February.
Kpler senior analyst Xu Muyu predicts that China’s imports of Russian Far East crude will remain low in the coming weeks, after falling to a six-month low of 717,000 bpd last week.
For India, FGE estimates a disruption of 450,000 bpd in Russian crude supply, but refiners are utilizing the wind-down period. India has been experiencing lower Russian supply in December and January compared to the previous six months.
Indian refiners have started seeking alternative supply from the Middle East, Africa, and the U.S. for March and April, anticipating tighter Russian supply.
