Russia’s Seaborne Crude Flows At Risk As India Shuns Key Grade

(Bloomberg) --

Russia’s seaborne crude shipments fell for a second week, with difficulties selling a key Pacific grade to India set to further snarl flows in the coming week.  

Moscow has been struggling to get its Sokol crude into India, the main market for the grade produced by the Sakhalin 1 project, with the Asian nation's refiners wary of falling foul of US sanctions and complaining that the grade is too expensive relative to alternatives.

Although two shipments were delivered recently to India after a break of more than two months, Russia's difficulties seem far from over as at least 13 more, totaling about 9 million barrels, are still sitting on vessels that appear to be going nowhere. 

Adding to Moscow’s concerns, all seven of the specialized shuttle tankers that haul the crude from the export terminal now have cargoes on board, leaving none available to take on fresh shipments. The lack of available ships will hamper exports of Sokol for at least the next week, and possibly longer. 

Even before the problems loading the Sokol cargoes, Russia's crude shipments fell by about 360,000 barrels a day in the week to Feb. 18 to 3.13 million barrels a day. The decline put exports 150,000 barrels a day below the level Moscow has pledged to its OPEC+ partners for the first quarter, on a weekly basis. Despite that retreat, the less volatile four-week average rose for a third week, up by about 30,000 barrels a day, putting it almost exactly in line with the target.

Russia said it would cut oil exports by 500,000 barrels a day below the May-June average during the first quarter, after several other members of the OPEC+ group agreed to make further output curbs. The Russian cut will be shared between crude shipments, which will be reduced by 300,000 barrels a day, and refined products. 

The gross value of Russia’s crude exports slipped for a second week, dropping to $1.55 billion in the seven days to Feb. 18 from $1.67 billion the previous week. Meanwhile four-week average income continued to rise, up by $41 million to $1.59 billion a week.

Flows by Destination

Despite the drop in weekly shipments, Russia’s seaborne crude flows in the four weeks to Feb. 18 edged higher to 3.27 million barrels a day. That was up from 3.25 million barrels a day in the period to Feb. 11. Shipments were about 310,000 barrels a day below the average seen in May and June, or virtually in line with Russia’s first quarter target.

The four-week average continues to be affected by the storm that closed the Pacific port of Kozmino for five days in the week to Jan. 28 and disruptions to shipments from Ust-Luga caused by a drone strike on a neighboring condensate refinery, followed by several days of maintenance at the Baltic crude export terminal. As a result, the figure is likely to rise again next week.

Russia appears to be opening up small new markets for its crude.

About 1.8 million barrels of Russian crude is headed to Venezuela on the VLCC Ligera. The vessel arrived off the Amuay refinery on Tuesday morning.

A fourth cargo is heading to Tema in Ghana, where a new refinery built by Chinese investors has begun processing crude. The plant will initially run 40,000 barrels a day, rising to 100,000 barrels with completion of a second phase, due by the end of 2025.

Two cargoes of Gazprom Neft PJSC’s Arctic crude oil have been delivered to the Pulau Muara Besar refinery in Brunei over the past month. 

All figures exclude cargoes identified as Kazakhstan’s KEBCO grade. Those are shipments made by KazTransoil JSC that transit Russia for export through the Black Sea port of Novorossiysk and the Baltic’s Ust-Luga and are not subject to European Union sanctions or a price cap.

The Kazakh barrels are blended with crude of Russian origin to create a uniform export grade. Since Russia’s invasion of Ukraine, Kazakhstan has rebranded its cargoes to distinguish them from those shipped by Russian companies.

• Asia

Observed shipments to Russia’s Asian customers, including those showing no final destination, slipped to 2.84 million barrels a day in the four weeks to Feb. 18, down from a revised 2.91 million in the previous four-week period.

About 1.21 million barrels a day of crude was loaded onto tankers heading to China. The Asian nation’s seaborne imports are boosted by about 800,000 barrels a day of crude delivered from Russia by pipeline, either directly, or via Kazakhstan. 

Flows on ships signaling destinations in India averaged about 960,000 barrels a day.

Both the Chinese and Indian figures will rise as the discharge ports become clear for vessels that are not currently showing final destinations.

The equivalent of about 540,000 barrels a day was on vessels signaling Port Said or Suez in Egypt, or are expected to be transferred from one ship to another off the South Korean port of Yeosu. Those voyages typically end at ports in India or China and show up in the chart below as “Unknown Asia” until a final destination becomes apparent.  This figure includes the Sokol crude still on shuttle tankers awaiting transfer to other vessels as well as the other stranded cargoes of the grade.

The “Other Unknown” volumes, running at about 130,000 barrels a day in the four weeks to Feb. 18, are those on tankers showing no clear destination. Most of those cargoes originate from Russia’s western ports and go on to transit the Suez Canal, but some could end up in Turkey. Others could be moved from one vessel to another, with most such transfers now taking place in the Mediterranean, off the coast of Greece.

Ship-to-ship transfers of crude in the Laconian Gulf off Greece have picked up after several months of inactivity. The VLCC Ligera, holding about 1.8 million barrels, has arrived in Venezuela after taking on cargoes from two smaller tankers. A second supertanker, Achelous, has passed through the Red Sea on its way to China. 

Europe and Turkey

Russia’s seaborne crude exports to European countries have ceased.

A market that consumed about 1.5 million barrels a day of short-haul crude, coming from export terminals in the Baltic, Black Sea and Arctic has been lost completely since Moscow’s troops invaded Ukraine in February 2022, replaced by long-haul destinations in Asia that are much more costly and time-consuming to serve.

With flows to Bulgaria halted at the end of last year, Turkey is now the only short-haul market for shipments from Russia’s western ports.

Exports to Turkey recovered to a five-week high of about 365,000 barrels a day in the four weeks to Feb. 18. That’s up from a revised figure of about 260,000 barrels a day in the period to Feb. 11.

No Russian crude was shipped to European countries in the four weeks to Feb. 18. A cargo of Urals, sold by Kazakhstan from Novorossiysk, was delivered to Burgas in Bulgaria. The refinery there, owned by Lukoil PJSC, previously took its own Urals cargoes, but the shipments stopped at the end of last year.

Vessel-tracking data are cross-checked against port agent reports as well as flows and ship movements reported by other information providers including Kpler and Vortexa Ltd.

Export Value

Following the abolition of export duty on Russian crude, we have begun to track the gross value of seaborne crude exports, using Argus Media price data and our own tanker tracking.

The gross value of Russia’s crude exports slipped for a second week, dropping to $1.55 billion in the seven days to Feb. 18 from $1.67 billion the previous week. Meanwhile four-week average income continued to rise, up by $41 million to $1.59 billion a week. The four-week average is still well off its peak of $2.17 billion a week, reached in the period to June 19, 2022. The highest it reached last year was $2 billion a week in the period to Oct. 22.

During the first four weeks after the Group of Seven nations’ price cap on Russian crude exports came into effect in early December 2022, the value of seaborne flows fell to a low of $930 million a week, but soon recovered.

The chart above shows a gross value of Russia’s seaborne oil exports on a weekly and four-week average basis. The value is calculated by multiplying the average weekly crude price from Argus Media Group by the weekly export flow from each port. For shipments from the Baltic and Arctic ports we use the Urals FOB Primorsk dated, London close, midpoint price. For shipments from the Black Sea we use the Urals Med Aframax FOB Novorossiysk dated, London close, midpoint price. For Pacific shipments we use the ESPO blend FOB Kozmino prompt, Singapore close, midpoint price.

Export duty was abolished at the end of 2023 as part of Russia’s long-running tax reform plans.

Ships Leaving Russian Ports

The following table shows the number of ships leaving each export terminal.

A total of 29 tankers loaded 21.9 million barrels of Russian crude in the week to Feb. 18, vessel-tracking data and port agent reports show. That was down by about 2.5 million barrels from the previous week.

Shipments from Russia’s Pacific terminal at Kozmino slipped for a second week.

All seven of the specialized shuttle tankers that haul Sokol crude from the De Kastri export terminal now have cargoes on board, leaving none available to take on fresh cargoes. Three are now heading to ports in China after spending as much as two-and-a-half weeks anchored off the South Korean port of Yeosu, where cargoes are typically transferred onto other ships for onward delivery to India. A lack of available shuttle tankers is likely to hit exports of Sokol crude for at least the next week, if not longer.

All figures exclude cargoes identified as Kazakhstan’s KEBCO grade. Two cargoes of KEBCO was loaded at Novorossiysk during the week.

NOTES

Note: This story forms part of a weekly series tracking shipments of crude from Russian export terminals and the gross value of those flows. Weeks run from Monday to Sunday. The next update will be on Tuesday, Feb. 27. 

Note: All figures exclude cargoes owned by Kazakhstan’s KazTransOil JSC, which transit Russia and are shipped from Novorossiysk and Ust-Luga as KEBCO grade crude.

If you are reading this story on the Bloomberg terminal, click here for a link to a PDF file of four-week average flows from Russia to key destinations.

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