Tightened U.S. sanctions on Russia have thrown the global oil trade into turmoil, particularly affecting the flow of discounted Russian oil to major importers like China and India. The sanctions, implemented on January 10, aim to limit Moscow’s oil revenue following its invasion of Ukraine three years ago.
Key Highlights:
Impact of Sanctions:
The new sanctions target tankers carrying Russian oil, resulting in millions of barrels stranded at sea and disrupting trade dynamics.
Demand for Middle Eastern and African crudes has surged as traders seek alternatives to Russian oil.
Market Dynamics:
The price of high-sulphur benchmark Dubai briefly exceeded that of low-sulphur Brent, creating opportunities for producers from Brazil to Kazakhstan.
Premiums for Brazilian crude increased significantly, rising from about $2 to nearly $5 per barrel against dated Brent for shipments to China.
Shifts in Import Patterns:
China is set to import its first cargo of Kazakhstan’s CPC Blend since June 2024, reflecting the changing landscape.
TotalEnergies’ trading arm experienced a surge in inquiries for Middle Eastern crude, leading to tenders rather than private negotiations.
Rising Prices:
Premiums for benchmarks such as Oman, Dubai, and Murban more than doubled in January, with Saudi Aramco raising prices for Asia-bound crude to the highest levels since December 2023.
Indian refiners, who previously shifted to Russian oil, are now facing higher costs and limited supplies due to the sanctions.
Challenges for Indian Refiners:
India’s oil secretary indicated that refiners are now looking for Russian oil only from non-sanctioned vessels, effectively reducing available cargoes.
Discounts for Russian Urals crude have narrowed significantly, increasing costs for Indian refiners and diminishing the incentive to risk secondary sanctions.
Floating Storage Increase:
The volume of Russian oil stored on ships has risen by 17 million barrels since the sanctions, with projections suggesting it could reach 50 million barrels in the first half of 2025.
Tankers carrying Russian oil are reportedly congregating around Shandong and southern ports in China, which are key entry points for independent refiners.
Iranian Oil Imports Decline:
Concurrently, Iranian oil imports to China are also falling under intensified U.S. pressure, with Goldman Sachs estimating a significant rise in Iranian floating storage.
Future Market Volatility:
The sanctions are expected to reduce Russian oil exports by up to 1.5 million barrels per day, contributing to increased market volatility.
Experts predict that ongoing government interventions will lead to further instability in oil prices.