Chinese and Indian refiners will source more oil from the Middle East, Africa and the Americas, driving up prices and transportation costs, as new U.S. sanctions on Russian producers and ships reduce the supplies to Moscow’s main customers, according to traders and analysts.
The U.S. Treasury on Friday imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 ships that transported Russian oil, targeting revenues that Moscow used to finance its war with Ukraine.
Many of these tankers have been used to transport oil to India and China, as Western sanctions and the Group of Seven’s 2022 price cap have shifted Russian oil trade from Europe to Asia. Some tankers also transported oil from Iran, which is also subject to sanctions.
Russian oil exports will be badly hit by the new sanctions, which will force China’s independent refiners to cut production in the future, two Chinese trade sources said. The sources declined to be named because they are not authorized to speak to the media.
Of the newly sanctioned vessels, 143 are tankers that carried more than 530 million barrels of Russian crude last year, or about 42% of the country’s total seaborne crude exports, said Matt Wright, senior analyst at the freight at Kpler, in a note.
Of this, around 300 million barrels were shipped to China and the rest to India, he added.
“These sanctions will significantly reduce the fleet of vessels available to deliver crude from Russia in the short term, resulting in higher freight rates,” Mr Wright said.
A Singapore-based trader said designated tankers shipped nearly 900,000 bpd of Russian crude to China over the past 12 months.
“This is going to see a dizzying decline,” he added.
In the first 11 months of last year, India’s imports of Russian crude rose 4.5% from a year earlier to 1.764 million bpd, or 36% of India’s total imports. China’s import volume, including pipeline supply, increased 2% to 99.09 million metric tons (2.159 million bpd), or 20% of its total imports, during the same period.
China’s imports consist mainly of Russian ESPO Blend crude, sold above the price ceiling, while India buys mainly Urals oil.
Emma Li, an analyst at Vortexa, said exports of Russian ESPO Blend crude would be disrupted if sanctions were strictly enforced, but that would depend on US President-elect Donald Trump lifting the embargo and recognizing the sanctions. by China.
ALTERNATIVES
The new sanctions will push China and India back into the compliant oil market to seek more supply from the Middle East, Africa and the Americas, the sources said.
Spot oil prices from the Middle East, Africa and Brazil have already risen in recent months due to growing demand from China and India, while supplies of Russian and Iranian oil are increasing. is tightened and has become more expensive, they added.
“Prices are already rising for Middle Eastern grades,” said an Indian oil refining official.
“We have no choice but to turn to Middle Eastern oil. Perhaps we will also have to look to American oil.”
A second Indian refining source said sanctions on Russian oil insurers will prompt Russia to price its crude below $60 a barrel, so Moscow can continue to use Western insurance and oil companies.
Harry Tchilinguirian, head of research at Onyx Capital Group, said: “Indian refiners, who are the main buyers of Russian crude, are unlikely to wait to find out what happens and will scramble to find alternatives in crude from the Middle East and the Atlantic basin linked to Dated-Brent.
“The strength of the Dubai benchmark can only increase from here as we are likely to see aggressive bidding for February loaded cargoes from Oman or Murban, leading to a tightening of the gap between Brent and Dubai,” he added.
Last month, the Biden administration designated more ships handling Iranian crude in anticipation of tougher action expected from the incoming Trump administration, leading the Shandong Port Group to ban sanctioned tankers from doing so. stopover at its ports in the eastern province of China.
As a result, China, the main buyer of Iranian crude, will also look to heavier Middle East oil and will most likely maximize its purchases of Canadian crude from the Trans-Mountain (TMX) pipeline, Tchilinguirian said. .
