Refiners in China and India will get more oil supplies from the Middle East, Africa and America, raising prices and shipping costs, as new US sanctions on Russian producers and vessels limit supplies to Moscow’s main customers, traders and analysts said.
The US Treasury Department on Friday imposed sanctions on Russian oil producer Gazprom Neft
SIBN
and Surgutneftegas, as well as 183 ships delivering Russian oil, targeting revenues that Moscow uses to fund its war with Ukraine.
Many of the tankers are used to ship oil to India and China as a result of Western sanctions and price caps imposed by the Group of Seven (G7) countries in 2022 that shifted Russia’s oil trade from Europe to Asia. Some tankers also ship oil from Iran, which is also subject to sanctions.
Russian oil exports will be hit hard by the new sanctions, which will force China’s independent refiners to reduce future refining output, two Chinese trade sources said. The sources declined to be named because they were not authorized to speak to the media.
Among the new ships hit by sanctions, 143 were oil tankers that handled more than 530 million barrels of Russian crude last year, or about 42% of the country’s total crude oil exports by sea, top freight analyst Kpler said. Matt Wright in a note.
Of this, around 300 million barrels were sent to China while most of the rest was sent to India, he added.
“These sanctions will significantly reduce the fleet of vessels available to ship crude oil from Russia in the short term, thereby driving freight rates higher,” Wright said.
A Singapore-based trader said the designated tanker delivered nearly 900,000 barrels per day of Russian crude to China over the past 12 months.
“This is going to fall off a cliff,” he added.
During the first 11 months of last year, India’s crude oil imports from Russia rose 4.5% compared to a year ago to 1.764 million barrels per day, or 36% of India’s total imports. China’s volume, including pipeline supplies, rose 2% to 99.09 million metric tons (2.159 million barrels per day), or 20% of its total imports, in the same period.
China’s imports are mostly Russian ESPO Blend crude, which sells above the price ceiling, while India mostly buys Ural oil.
Vortexa analyst Emma Li said exports of Russian ESPO Blend crude would be halted if sanctions were strictly enforced, but this would depend on whether US President-elect Donald Trump lifts the embargo and also whether China recognizes the sanctions.
ALTERNATIVE
The new sanctions will push China and India back into compliant oil markets to seek more supplies from the Middle East, Africa and America, the sources said.
Spot prices for Middle Eastern, African and Brazilian oils have risen in recent months due to increasing demand from China and India as supplies of Russian and Iranian oil tighten and become more expensive, they added.
“Prices for Middle Eastern grades have gone up,” said an Indian oil refining official.
“There is no choice but we have to choose Middle Eastern oil. Maybe we should also choose US oil.”
A second Indian refining source said sanctions on Russian oil insurers would encourage Russia to price its crude below $60 a barrel so Moscow can continue using Western insurers and tankers.
Harry Tchilinguirian, head of research at Onyx Capital Group said: “Indian refiners, which are major consumers of Russian crude, are unlikely to wait to find out and will be pushing hard to find alternatives to crude oil in the Middle East and associated Dated-Brent with the Atlantic Basin.
“Strength in the Dubai benchmark can only increase from here as we are likely to see aggressive bidding for cargoes such as Oman or Murban in February, leading to a tighter Brent/Dubai spread,” he added.
Last month, the Biden administration designated more vessels dealing in Iranian crude ahead of tougher measures expected from the incoming Trump administration, leading Shandong Port Group to ban sanctioned tankers from entering its ports in the eastern Chinese province.
As a result, China, a major buyer of Iranian crude, will also shift to heavier Middle Eastern oil and will likely maximize its take of Canadian crude from the Trans-Mountain (TMX) pipeline, Tchilinguirian said.
Source: Reuters
