Russian oil cargoes earn a premium for carrying sanctioned crude, but weaker markets are squeezing those margins

• Tankers carrying Russian oil command a "sanctions premium," but those margins have narrowed, Argus data shows.
• Freight rates for Russia's flagship Urals crude have declined across the board as supply builds up. 
• "Rates are likely to remain under pressure throughout April and into May as chartering is muted and looming OPEC+ cuts keep nibbling at shipowners' confidence."

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Tankers carrying Russian oil earn a premium for their sanctioned cargoes, but margins have narrowed in April amid a broader weakening across energy markets, research from commodities tracker Argus shows.

Freight rates for ships carrying Russia's flagship Urals crude out of the Black Sea, Baltic, and Barents Sea to China and India declined across the board as available tonnage kept building up in those regions, according to Alex Younevitch, Head of Freight at Argus. 

Argus data shared with Insider showed that the sanctions premium for Russian-origin cargoes from the Black Sea to the west coast of India narrowed by 50¢ per barrel month-on-month.

"As demand for Suezmaxs stagnated and weather conditions improved in the Turkish straits, general rates came under pressure and so did the premium for Russian business," Younevitch said via emailed comments.

Still, he added that the premium could hold for some time longer even in a weakening market, as sanctioned cargoes remain a valuable business.

But OPEC+'s decision early this month to cut production by 1.15 million barrels a day could weigh on freight demand further.

"Rates are likely to remain under pressure throughout April and into May as chartering is muted and looming OPEC+ cuts keep nibbling at shipowners' confidence," Younevitch said.

Since Moscow's invasion of Ukraine in February 2022, Europe has shunned its supplies and Russian barrels have been almost entirely absorbed by China and India, with the two nations together accounting for 75% of total Russian crude exports in the first quarter of this year. 

Tracking data from Kpler showed earlier this month that total Russian oil exports have now surpassed pre-war levels.

However, research published Wednesday from the Kyiv School of Economics found that while price caps have been effective in cutting into Moscow's export revenue, widespread sanctions violations persist.