By Trading activity for Russian oil due for March delivery has slowed in Asia, the primary market, Reuters reported on Tuesday.
This is due to a substantial price difference between buyers and sellers in China.
The increased cost of chartering tankers not subject to US sanctions has contributed to this gap, according to traders and shipping data.
US sanctions on Russian oil
On January 10th, the US government enacted new sanctions aimed at disrupting Russia’s oil supply chain.
These sanctions had a significant impact on the global tanker freight market, causing a sharp increase in freight rates.
This surge was primarily driven by the reactions of buyers and ports in major oil-importing countries like China and India.
In order to avoid potential legal and financial repercussions, these entities began to deliberately avoid using vessels that had been identified as being connected to the sanctioned Russian entities or activities.
This aversion to sanctioned ships led to a decrease in the available shipping capacity, which in turn drove up the cost of transporting oil.
Rising premiums
Premiums for March Russian ESPO Blend crude oil, exported from Kozmino, increased to $3-$5 per barrel to ICE Brent on a delivered ex-ship (DES) basis to China.
Three traders familiar with the grade reported that this jump is due to a surge of several million dollars in freight rates for Aframax tankers on the route, according to the Reuters report.
Spot premiums for ESPO Blend crude to China rose to almost $2 a barrel due to strong winter demand and increased prices for competing Iranian grades.
This was the highest price since the start of the Ukraine war in 2022, which had previously caused discounts as deep as $6. These price changes occurred before the January sanctions.
Bharat Petroleum Corp’s finance chief told Reuters last week that the company has not received any new offers for March delivery, as it would ordinarily have for Russian oil.
The company expects the number of cargoes offered for March to drop from January and December.
India usually receives offers for Russian crude oil mid-month. In 2024, Russian crude oil comprised 36% of India’s imports and almost 20% of China’s.
Kpler, an analytics firm, reports that the latest sanctions target tankers that transport approximately 42% of Russia’s seaborne oil exports, mainly to China, Reuters said.
However, sanctioned tankers are gradually offloading oil in China and India during a waiver period.
Delays
Despite meeting waiver requirements, newly sanctioned tankers in China are facing delays offloading oil, according to the report.
LSEG data shows that three tankers discharged Russian ESPO and Sokol crude between January 15-17. Additionally, the tanker Olia, which carried its ESPO cargo for almost three weeks, offloaded at Shandong’s Yantai port on Sunday.
Additionally, LSEG data indicates that the tanker Viktor Titov, which received Sokol on January 6, is currently en route to Qingdao. Meanwhile, the Huihai Pacific, which received ESPO on January 5, is awaiting discharge at Tianjin.
The expectation is that independent refiners will cut runs by 400,000 bpd by February as they are reducing operations due to the increased cost of alternative supply.
Senior analyst Xu Muyu from Kpler anticipates that China’s imports of Russian Far East crude will continue to be low in the coming weeks, following a drop to a six-month low of 717,000 barrels per day last week, Reuters reported.
Meanwhile, FGE reports that India is experiencing disruptions in 450,000 barrels per day of Russian crude supply. However, Indian refiners are capitalizing on the wind-down period.
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