Russia has increased oil shipments to Asia after Europe imposed severe sanctions. However, it needs to re-route more than a quarter of its crude oil exports from Europe.
This is approximately 1.3 million barrels per day – until December when an oil embargo will be in effect.
Russia exports approximately 20 million tonnes of crude oil per month, or roughly five million barrels per day (bpd), via several routes including the Druzhba Pipeline to Europe and other routes to Asia.
Russia exported 12.05 million tonnes via European ports and Druzhba in August. Approximately 5.5 million tonnes (1.3 Million bpd), were shipped to countries that will cease importing Russian oil starting Dec. 5.
Russia must find new buyers for its crude oil, which could mean low prices and special terms. However, it may also face more difficult logistics to ship to remote locations.
“Russian Urals oil was always quality for Europe. A trader on the Russian oil market stated that in order to reach new markets, one must ship cargo to Europe. “There are rising concerns about transport costs and insurance.
The United States and the European Union are also considering a price cap on Russian oil. They argue that it will reduce Moscow’s revenues while maintaining low global energy prices.
Moscow said that it wouldn’t sell oil to countries with a cap, and traders claimed they couldn’t see how the measure would work.
Russia is unlikely to cooperate with a price limit, as it does not make economic sense politically or economically. It is much easier for them to negotiate private deals rather than to commit to a price limit set by the West publicly,” a trader involved with Russian oil trading told Reuters.
Russia exported 8.85million tonnes of Urals oil from European ports in August. India, China, and Turkey bought approximately half of the remaining, while Europe received the remainder. Russia supplies Europe with approximately 3.2 million tonnes per month through the Druzhba pipe. Technically, the embargo does not apply to this route as Hungary and Slovakia want to continue purchasing from it.
However, Druzhba’s top buyers – Germany or Poland – are looking to end their purchases by 2023. This means that about two million tonnes per year will have to be sold and new buyers will be needed.
It will be difficult to re-route oil from Druzhba since Russian oil ports have limited export capacities and sellers will need to arrange more tankers. Traders said.
Russia cannot reroute large amounts of Urals to the East Siberia Pacific Ocean pipeline (ESPO), which is already at capacity. This means that Urals crude oil can only be shipped via Europe or the Suez Canal to Asia.
Even though Moscow may offer more favourable terms, India or China will not be able to purchase more Russian crude oil as they already have long-term contracts that they have with other producers like Saudi Arabia and UAE.
According to an Asian oil trading company, “Russian companies offer discounts on shipping costs and insurance coverage, payment options, and other perks to retain buyers.”
Russian companies will also need to modify how they sell crude oil.
The Asian oil market has a shorter trading cycle than Europe’s: As of mid-September, Asian buyers were trading December-loading cargoes while Europe was still pricing October loadings.
Russia is trying to attract smaller players in order not to rely on India, China and Turkey as its sole source of sales. According to Refinitiv Eikon data, Sri Lanka said that it would begin to buy oil from Russia.
However, this year’s purchases have only been around 300,000 tonnes. Cuba purchased 200,000 tonnes worth of the Urals in this year’s fiscal year. “Small players don’t have enough oil to absorb Russian oil,” a third trader involved in the Russian oil market said.
According to a third trader in the Russian oil market, China is the last resort or Moscow must reduce output eventually.
