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AlwaysFree: Flows Of Russia's Seaborne Crude Rose For A Fourth Time To The Highest Level Since June

Author: SSESSMENTS

  • Russia's crude flows rose to the highest since June, but cash for Moscow’s coffers is undermined by deep discounts

According to Bloomberg article published on February 6, 2023, flows of Russia's seaborne crude rose for a fourth time last week to the highest level since June, helped by the diversion of volumes that were previously piped directly to Germany and Poland.

But the combination of Europe’s ban on imports, which was supplemented on Sunday by a similar prohibition on purchases of Russian refined products, and price caps on exports elsewhere has squeezed the Kremlin’s earnings from its oil sales.

Limiting Russian sales to a small group of buyers and driving it onto much longer voyages to customers has forced Moscow to offer deep discounts. Permitting Russia to maintain export volumes has helped to ensure that the world remains well supplied, which has contributed to Brent crude’s slide to about $80 a barrel. That has further reduced Moscow’s income, while helping to ease global inflationary pressures.

Aggregate volumes of Russian crude rose by 125,000 barrels a day to 3.465 million in the four weeks to Feb. 3, even though weekly shipments fell by a similar amount. The increase in seaborne shipments in recent weeks has been offset almost exactly by a drop in pipeline flows to Europe. Volumes piped to Germany and Poland slid to about 120,000 barrels a day in January from 510,000 barrels a day last summer.

In contrast, flows into the Kremlin's war chest from its crude-export duty fell by $7 million to $50 million in the seven days to Feb. 3, while the four-week average income dropped by $2 million to $54 million.

Averaging flows over several weeks smooths out peaks and troughs in what are noisy weekly data and gives a clearer picture of trends in Russia’s crude exports. The weekly figures are highly volatile, depending on the timings of when individual shipments depart and things like weather conditions and work at ports.

The European Union’s import ban on Russia crude has led to much longer voyages for shipments, with journeys now taking an average of 31 days from Baltic ports to India, compared with just seven days from the same terminals to Rotterdam and about half that to Poland. That’s putting more pressure on the dwindling fleet of ships whose owners are willing to haul Russian cargoes. A similar pattern is expected to emerge in Russia’s refined products trade.

The country is increasingly reliant on its own tankers and a so-called “ shadow fleet” of usually older ships owned by small, often unknown companies that have sprung up in recent months. European-owned vessels can still carry Russian crude, as long as it is sold at a price below a $60-a-barrel cap, introduced at the same time as the import ban. The level of that cap is due to be reviewed in March. 

There has also been a resurgence in ship-to-ship transfers of cargoes in the Mediterranean, with loads either being combined onto larger vessels or shifted from ice-class tankers to others in order to free up those ships needed for operations in the Baltic in the winter months.

Tankers hauling Russian crude are becoming more cagey about their final destinations. Vessels carrying more than 41 million barrels of Russian crude, the equivalent of 1.45 million barrels a day of exports, left port showing no clear final destination in the four weeks to Feb. 3.

Crude Flows by Destination:

On a four-week average basis, overall seaborne exports rose by 125,000 barrels a day from the period to Jan. 27. At 3.465 million barrels a day, four-week average flows are the highest since June.

All figures exclude cargoes identified as Kazakhstan’s KEBCO grade. These are shipments made by KazTransoil JSC that transit Russia for export through Ust-Luga and Novorossiysk.

The Kazakh barrels are blended with crude of Russian origin to create a uniform export grade. Since the invasion of Ukraine by Russia, Kazakhstan has rebranded its cargoes to distinguish them from those shipped by Russian companies. Transit crude is specifically exempted from the EU sanctions.

The volume of crude on vessels heading to China, India and Türkiye, the three countries that emerged as the only significant buyers of displaced Russian supplies, plus the quantities on ships that are yet to show a final destination, jumped in the four weeks to Feb. 3 to average 3.29 million barrels a day. That’s up by 172,000 barrels a day from the period to Jan. 27, and the highest since Bloomberg began monitoring the flows in detail at the start of 2022.

The figure has been rising since the start of the year, when Germany and Poland slashed the volume of crude they were taking through the Druzhba pipeline from Russia. It is likely that these volumes have been redirected to Russia’s Baltic ports and are now being shipped to Asia.

Most of the ships yet to show destinations are likely to end up in India or China.

Asia

Four-week average shipments to Russia’s Asian customers, plus those on vessels showing no final destination, which typically end up in either India or China, jumped to a new high of 3.15 million barrels a day in the four-week period to Feb. 3.

While the volume heading to India appears to have slumped, history shows that most of the cargoes on ships initially showing no final destination end up there.

The equivalent of more than 820,000 barrels a day was on vessels showing destinations as either Port Said or Suez, or which have already been or are expected to be transferred from one ship to another off the South Korean port of Yeosu. Those voyages typically end at ports in India and show up in the chart below as “Unknown Asia” until a final destination becomes apparent.

The “Unknown” volumes, running at 633,000 barrels a day in the four weeks to Feb. 3, are those on tankers showing a destination of Gibraltar, Ceuta, Kalamata, Malta or no destination at all. Most of those cargoes go on to Asia, but some could end up in Türkiye. An increasing number are being transferred from one vessel to another in the Mediterranean for onward journeys through the Suez Canal or on larger vessels around Africa.

Europe

Russia’s seaborne crude exports to European countries edged lower to 125,000 barrels a day in the 28 days to Feb. 3, with Bulgaria the sole European destination. These figures do not include shipments to Türkiye.

A market that consumed more than 1.5 million barrels a day of short-haul crude, coming from export terminals in the Baltic, Black Sea and Arctic has been lost almost completely, to be replaced by long-haul destinations in Asia that are much more costly and time-consuming to serve.

No Russian crude was shipped to northern European countries in the four weeks to Feb. 3.

Exports to Mediterranean countries rose from the previous week on both a weekly and a four-week average basis.

Türkiye was the only destination for Russian seaborne crude into the Mediterranean and flows there are creeping back up from the lows seen for most of December and into early January. Four-week average shipments to Türkiye were the highest in eight weeks in the period to Feb. 3.

Flows to Bulgaria, now Russia’s only Black Sea market for crude, gave up the previous week’s increase, slipping back to 125,000 barrels a day. Bulgaria secured a partial exemption from the EU ban, which should support inflows now that the embargo has come into force.

Flows by Export Location

Aggregate flows of Russian crude fell by 135,000 barrels a day, or 4%, in the seven days to Feb. 3. A big drop in flows from the Baltic, which were down by 625,000 barrels a day, or 32%, was partly offset by gains in Arctic and Pacific exports. Shipments from the Black Sea were unchanged from the previous week.

Figures exclude volumes from Ust-Luga and Novorossiysk identified as Kazakhstan’s KEBCO grade.

Export Revenue

Inflows to the Kremlin's war chest from its crude-export duty fell by $7 million to $50 million in the seven days to Feb. 3, while the four-week average income dropped by $2 million to $54 million.

February’s duty rate is set at $1.75 a barrel. That’s down by 23% from January and the lowest per barrel rate since June 2020, during the depths of the Covid 19 pandemic. The drop is the result of a decline in Urals prices over the measurement period, which ran from mid-December to mid-January. Russia’s benchmark grade averaged $46.82 a barrel according to ministry figures, a discount of almost $35 a barrel to Brent over the same period.

The formula used to calculate duty rates was altered for 2023, with the country moving away from taxing exports and shifting the burden to production as part of its multi-year tax maneuver. The plan sees export duty phased out entirely by the start of 2024.

Origin-to-Location Flows

The following charts show the number of ships leaving each export terminal and the destinations of crude cargoes from the four export regions.

A total of 32 tankers loaded 24 million barrels of Russian crude in the week to Feb. 3, vessel-tracking data and port agent reports show. That’s down by 945,000 barrels, or 4%, from the previous week. Destinations are based on where vessels signal they are heading at the time of writing, and some will almost certainly change as voyages progress. All figures exclude cargoes identified as Kazakhstan’s KEBCO grade.

The total volume on ships loading Russian crude from Baltic terminals fell back from the high seen the previous week, dropping to a four-week low.

From the Baltic

Shipments from Novorossiysk in the Black Sea were stable at about 400,000 barrels a day for a third week in the period to Feb. 3.

Arctic shipments rebounded to equal their highest since October, with three Suezmax tankers leaving from Murmansk during the week. With all cargoes now heading to Asia via the Suez Canal, these larger vessels have replaced the Aframaxes that were previously used for deliveries from the floating storage units at the port.

Flows from the Pacific rose to equal their highest level since at least the beginning of 2022, with 12 tankers loaded at the region’s three terminals, up from 10 the previous week.

Tags: AlwaysFree,Central and East Europe,Crude Oil,English,Europe,Russia and CIS

Published on February 7, 2023 2:55 PM (GMT+8)
Last Updated on February 7, 2023 2:55 PM (GMT+8)