Freight rates for Russian oil shipments from the Baltic Sea ports to India have experienced a decline in July and August. This downward trend is primarily attributed to an increased availability of tankers in the market.
EU Sanctions and Potential Price Cap Reduction
The European Union is in the final stages of approving its 18th sanctions package on Russia. A key component of this package is a potential lower price cap on Russian oil, which could be pushed below $45 per barrel from the current $60. The proposed measure may involve a floating price cap, dynamically set at 15% below the average price of Russian oil over the previous 22 weeks. This adjustment aims to adapt to changing market conditions and enhance the effectiveness of the cap in limiting Russia’s oil revenues.
In early April, global oil prices declined, causing the price of Urals crude in Russian ports to fall below the $60 per barrel threshold. This allowed more Western shipping companies to resume services for Russian oil, including freight. The cost of shipping Urals oil from the Russian Baltic Sea ports of Primorsk and Ust-Luga to India on an Aframax tanker (carrying 730,000 barrels) consequently fell to between $5 million and $5.3 million for a one-way shipment in July, down from $5.5 million and $5.7 million in June. Reuters data indicated that Urals oil prices remained below the $60 per barrel price cap last week.
Impact of US Statements and Previous Sanctions
The Russian oil freight market has been “frozen” since last Friday due to U.S. President Donald Trump’s announced “major statement” on Russia, slated for Monday. This announcement has fueled speculation about a possible tightening of sanctions against Moscow, causing market participants to pause.
Previous rounds of U.S. sanctions have already had a tangible impact on Russian crude oil shipping rates. A new round of U.S. sanctions on Russian energy interests, announced in January and coming into effect, led to a sharp rise in Russian crude oil shipping rates. This forced Russian oil sellers to seek new tankers to replace vessels impacted by the sanctions. Despite the recent dip in rates for Urals oil shipments to India, freight costs still remain above the pre-sanctions levels of early January, when the cost of shipping Russian crude from the Baltic ports to India was between $4.7 million and $4.9 million.
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Source: Reuters
