Why Russian-Origin Barrels Are Difficult To Track?

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Keeping track of Russian crude and oil products as barrels pass through storage hubs will be difficult amid tightening sanctions and growing attention on ship-to-ship transfers of Russian-origin liquids, analysts and data suggest, reports SP Global.

Tracking performance

“An even bigger concern than transfers at sea will be tracking Russian origin through onshore tank discharges and re-exports, for example from storage terminals in ARA and the Caribbean,” energy industry strategist Clay Seigle told S&P Global Commodity Insights.

At the time of re-export, tracking platforms will merely show the current origin of these barrels — for example Rotterdam or St. Eustatius — and not Russia, he said.

“Questions remain over the use of Russian-sourced crude to make refined products in some markets that could then be exported to Europe, despite boycotts and sanctions against imports of Russian-origin products by European governments and traders,” she said.

In the case of crude, Russian Urals is trading at a significant discount to international benchmark Dated Brent and this adds to the attraction of Russian material. Platts assessed Urals cargoes delivered to Rotterdam at a $35.20/b discount to Dated Brent July 13, according to S&P global data.

Fujairah re-exports

The Middle Eastern oil hub of Fujairah has emerged as a key importer of Russian fuel oil in recent months, with the shift in trade flows coinciding with a surge in fuel oil exports from Fujairah to the US as American refineries look to replace Russian fuel oil feedstocks, according to trading sources and shipping data.

Fuel loadings from Russia to Fujairah hit a record high of 527,000 mt (116,00 b/d) in June, according to preliminary estimates from data intelligence firm Kpler. This compared with 403,00 mt and 482,000 mt in May and April, respectively. In February, only 86,000 mt of Russian fuel oil flowed to the Fujairah hub, Kpler data showed.

The two largest exporters to Fujairah are Iran and Russia, which account for more than 90% of monthly imports of 3.5% sulfur fuel oil, according to Kpler.

Fuel oil exports from Fujairah to the US have averaged 255,000-400,000 mt since the end of February, according to Kpler and the US customs data.

Fujairah has historically not been a significant exporter to the US, according to Kpler and US customs data. However, since Russia’s invasion of Ukraine, the US has increased its purchases of fuel oil from Fujairah.

STS activity in different regions

In the weeks following the invasion, there has been a noted increase in deliveries of Russian oil to the Greek port of Kalamata, a key blending hub in the Mediterranean region, according to Kpler.

The three-month average of fuel oil imports to Kalamata jumped from 218,000 mt in February to an all-time high of 481,000 mt at the end of May, according to Kpler.

Against the same period of 2021, fuel oil shipments to Kalamata have soared more than 500%, according to the Kpler data.

However, market participants have also pointed to a potential slowdown in blending activities in Kalamata more recently, with fuel oil deliveries to the port expected to total 179,000 mt in June, according to Kpler data.

STS activity is happening elsewhere too. There were three “dark” STS cases in June, with vessels loading in the Russian Baltic and then performing STS transfers, while their transponders were turned off, outside the Azores, according to data from Vortexa. According to Windward, 42% of sanctioned Russian oil is going to China, the majority of it via STS hubs in Denmark and South Korea.

“These findings highlight the challenge posed by STS cargo transfers to the enforcement of restrictions imposed by the international coalition opposing Russia’s invasion of Ukraine,” Seigle said.

A significant task

Once sanctions formally take effect it may be harder to send Russian oil to some destinations, even with the help of STS activity or re-exports from blending hubs.

Platts Analytics expects Russian oil exports overall to decline and shift to Asia in the case of crude and to Africa and other destinations in the case of products.

Under this forecast, Europe would see around 1.700 million b/d less product while Asia and Africa would see 700,000 b/d more.

That has yet to materialize to a significant extent. S&P Global data showed Russian crude and product waterborne exports stood at 6 million b/d in January and only very slightly below that in June.

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Source: SP Global

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