Via gCaptain, a Bloomberg report details that the oil that underpins Russia’s economy is still moving.
Russian Crude Exports Stay High as OPEC+ Partners Call for Clarity
Russian crude oil flows to international markets continue unabated, with no substantive sign of the output cuts that the Kremlin insists the country is making.
Four-week average seaborne shipments, which smooth out some of the volatility in weekly numbers, edged higher in the period to June 4, rising to 3.73 million barrels a day from a revised 3.68 million in the period to May 28.
Flows to international markets are more than 1.4 million barrels a day higher than they were at the end of last year — more than can be accounted for by the diversion of pipeline flows or lower refinery runs. Shipments have also risen since February, the baseline month for the pledged production cut.
Moscow’s OPEC+ partners have sought clarity and transparency from Russia on the country’s crude production. They noted that Moscow has made a commitment to accept reassessment of February’s production level by OPEC’s secondary sources. The assessment by those seven companies currently stands at 9.83 million barrels a day.
There is little evidence that the 500,000 barrels a day of cuts have been made. Moscow has cited the diversion of crude previously piped to Germany and Poland through the Druzhba pipeline as a reason for robust shipments; but that switch happened in January and February, before the output cut was due to come into effect. Flows of Russian crude through the pipeline, now limited to deliveries to Hungary, Slovakia and the Czech Republic, have been stable at about 240,000 barrels a day since February.
And while Russian refineries cut their crude processing in the first part of May, runs recovered in the final week of the month, rising by about 180,000 barrels a day from the previous seven days. Despite the dip in refinery runs there is no sign of a corresponding drop in overseas shipments of refined products.
Which is not to say that sanctions are not having an effect. Reporter Julian Lee adds this:
Russia’s revenues from oil are still being hit hard, despite robust overseas flows. May’s budget proceeds from oil taxes plunged 31% from a year ago to 426 billion rubles ($5.2 billion), according to Bloomberg calculations.
emphasis added
The rest of the report details where the oil is going, who is buying it, and how much is moving. The sanctions against Russia for its invasion of Ukraine and the shift by European countries away from energy dependence on Russia has altered where the oil is going. According to Alex Lawler at Reuters:
LONDON, March 14 (Reuters) - Western sanctions on Russian and Iranian oil have channelled cheap fuel to Asia and in the process eroded a decades-long trend whereby the continent has paid more for energy than Europe, according to traders, analysts and Refinitiv Eikon data.
Analysts and government officials from consumer countries use the term Asian premium to refer to the higher prices Asian importers have paid for oil sold by big exporters, such as members of the Organization of the Petroleum Exporting Countries.
For Asia, a weakened premium amounts to an economic stimulus, highlighting another unintended consequence of the Western sanctions on oil and gas exporter Moscow, which also led to a surge in the amount Europeans have paid for natural gas.
"It's safe to say that some major consumers in Asia, most notably India and China, are the major winners of the sanctions," Ole Hansen, head of commodity strategy at Saxo Bank, said.
Western Sanctions have led Russia to sell more than twice as much crude to Asia in the year to January, according to Kpler data. Iran, under U.S. sanctions, has boosted exports to the highest in three years on some estimates, with China the biggest buyer.
What kind of effect on pricing is this having, for Asian countries that used to have to pay more?
Russia's flagship export blend Urals, which before the Ukraine invasion was sold in Europe at a few dollars a barrel below the value of benchmark dated Brent, is being sold in Asia at a discount of minus $24, according to Refinitiv Eikon data. Some industry sources, asking not to be named, say the discount is narrower at $10-$15 per barrel.
Even at a discount of around $15 per barrel, a refinery in India processing 200,000 barrels per day would save $3 million a day on its crude purchases compared to a European rival. On an annual basis the saving would exceed $1 billion.
Hardeep Singh Puri, India's oil minister, said in early February the country will keep buying from Russia if prices "continue to be good".
Ideally, sanctions on Russian oil exports would serve to increase economic pressure on Russia to end the war, but what seems to be happening is that Russia is able to keep exporting oil — but is not able to charge as much for it.
Complicating the situation is the tactic of turning off ship location broadcast devices (Automatic Identification Systems) to conceal exactly where which ships are and what they are doing. This is one way shippers are trying to get around sanctions. From a March 28 report from VOA News:
In a sign that sanctions on Russia over the war in Ukraine may be starting to bite, Russian tanker ships carrying oil and petroleum products have been observed turning off systems that broadcast their identity and location, a practice known as "going dark" and which is often associated with efforts to evade sanctions.
In the days and weeks after Russia invaded Ukraine, the United States and a broad coalition of other countries imposed sweeping sanctions on Russian goods, including petroleum products. Experts say that by going dark, ships may be able to discharge cargo, often via ship-to-ship transfers at sea, without attracting the attention of law enforcement authorities.
According to data gathered by Windward Ltd., an Israeli firm that uses artificial intelligence to assess maritime risk, the number of incidents of Russia-affiliated ships going dark on a daily basis has increased dramatically since the introduction of sanctions.
This is especially true with regard to tankers carrying Russian crude oil. Prior to the invasion, Windward tracked two or three incidents per day of tankers loaded with Russian crude disabling their identification systems. It is now documenting about 20 a day.
"We're seeing a synchronized effort across Russian shipping and trading to systemically hide where their cargoes are going," Ami Daniel, Windward CEO, told VOA.
Bottom line: sanctions are having an effect on Russia — as well as some unintended consequences — but they are not 100% airtight. Nonetheless, the scope of actions taken to evade them are an indication of how much Russia is being hampered by them. Again from VOA News:
Russia's exports of petroleum products are a large contributor to the economy. In 2021, according to figures released by the Russian central bank, the country took in $490 billion from petroleum sales. Crude oil accounted for $110 billion of the total, and other oil products made up an additional $69 billion.
Daniel, of Windward, said his company expects to see Russian shippers resorting to additional methods of bypassing sanctions in the near future.
"We expect Russia to adopt many of these deceptive shipping practices, and not just in the tanker segments. Across all the segments, because of the huge pressure they're under," he said.