- China will remain a buyer of Russian crude.
- And China could even hike its imports from Russia.
- Latin American barrels in the wake of higher sour Urals imports.
If mainstream owners fear sanctions against Russia for its actions on the Ukraine border, according to broker BRS, veteran tanker owners may turn to rogue trading options as reported by Trade Winds.
Mainstream fears sanctions
Paris-based shipbroker BRS believes China will remain a buyer of Russian crude, but it may have to turn to the “shadow” fleet for shipments if mainstream owners fear sanctions.
Listed shipowners like Frontline and Euronav are already critical of rogue VLCC owners who ship Iranian and Venezuelan oil.
Any further trades that open up to these vessels will keep them out of scrapping yards and harm demand for younger ships.
BRS has already said any invasion of Ukraine would see crude and bunker prices skyrocket, hitting beleaguered tanker owners’ earnings.
The latest data suggests that Russia is producing 11.4m barrels per day (BPD) of oil, of which about 10.1m barrels is crude.
Considering that Russian domestic crude demand is almost 6m BPD, this leaves just over 4m BPD of crude, plus up to 900,000 BPD of gas condensate, available for export.
A significant volume of the Russian crude shipped to China has been pre-paid under long-term, oil-for-loans deals, meaning most of these sales bypass the US banking system, BRS said.
“Against this backdrop, it seems unlikely that there would be a halt to the 600,000-BPD flow of Russian crude shipped via the ESPO pipeline to the Chinese refining hub of Daqing,” the French broker said.
“Much depends on whether third-party tanker owners will carry such oil,” the company said.
“It seems likely that this could see China turn once again to shadowy vintage tonnage to plug any gap if private tanker owners refuse to carry Russian oil,” BRS added.
Increased use of Suezmax
And China could even hike its imports from Russia, as it could take any seaborne volumes left from the potential withdrawal of other Pacific Rim countries from the ESPO market.
This could involve the increased use of suezmaxes.
Considering the spare crude export capacity that Russia has across its network, options remain for Russia to orientate its exports to China via other routes, BRS argues.
Firstly, flows to China via Kazakhstan either by pipeline or rail could be upped.
However, any increase by this means would see crude tanker demand out of Russia fall.
Secondly, a further 200,000 BPD could be exported to China from Sakhalin Island, assuming other customers shun barrels.
A shift in crude flows
The broker identifies the potential that Russian Urals oil could be “mislabelled” as Kazakhstani barrels.
“If this was the case, and considering our assumptions for Kozmino, this would help to boost global Suezmax demand, something the segment has been crying out for of late,” the broker argues.
All in all, BRS believes China could “easily” up its intake of Russian crude by up to 1.2m BPD.
There would likely be a shift in crude flows, as China would import fewer sour Middle Eastern and Latin American barrels in the wake of higher sour Urals imports.
In turn, this would see a drop in VLCC fixtures, which are currently running at two to three per week in China.
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Source: Trade Winds