Russian Oil Exports on decline - Dec 20

[dan_s]

(Bloomberg) -- Russia’s seaborne crude shipments collapsed
in the first full week of Group of Seven sanctions targeting
Moscow’s petroleum revenues, a potential source of alarm for
governments around the world seeking to avoid disruption to the
nation’s giant export program.

Some of the plunge was exaggerated by work at a port in the
Baltic that’s now finished, but there also appeared to be a
shortage of ship owners willing to carry key cargoes from an
export facility in Asia. Several other ports also showed week-
on-week declines. The data must be treated carefully, because
weekly flows are at the mercy of the timing of cargo scheduling,
the weather, and even the quality of signals that the vessels
themselves transmit.

European Union sanctions that began on Dec. 5 are designed
to curb Russia’s revenue from oil. On one hand, the bloc stopped
buying but it also barred the provision of key services to
enable the oil to be moved. The US, alarmed at the severity of
the measures, pushed for the measures to be softened with the
implementation of a price cap, keeping those things — especially
insurance — available for buyers elsewhere in the world when
traders paid $60 a barrel or less for Russian oil.

But in the first full week after the EU ban on seaborne
Russian crude imports came into effect, total volumes shipped
from the nation dropped by 1.86 million barrels a day, or 54%,
to 1.6 million. A less volatile four-week average also plunged,
setting a new low for the year. Baltic Sea volumes should
recover with work now ended, but the issues in the East may take
longer to solve.

Maintenance at the key port of Primorsk cut shipments there
to just three cargoes in the week to Dec. 16, down from a more
normal weekly loading rate of about eight.

In the Pacific, though, flows of ESPO crude — named after a
pipeline bringing the oil from Siberia — from the port of
Kozmino appear to have plunged, with just two tankers loading in
the week to Dec. 16. That’s down from an average of eight a week
over the past three months. At least two major tanker owners
have withdrawn their ships from the route, with ESPO crude
selling at prices above the $60 a barrel cap set by the G7.
Carrying cargoes that were bought above the cap would deprive
the vessels of internationally-recognized insurance.

The flow from Kozmino will recover, at least partially, in the
week to Dec. 23, with three ships already loaded and two more
berthed half way through the period. But, with a smaller fleet
of ships available, volumes could remain erratic.

The EU’s ban on imports of Russian crude by sea that came into
force on Dec. 5 closed off Moscow’s closest oil market, which
took roughly half the country’s supplies at the start of the
year. With the exception of a small volume delivered to
Bulgaria, seaborne flows of Russian crude to the bloc halted in
full, as planned.

READ: What We’ve Learned Three Days Into the Russian Oil
Price Cap
The ban, along with the associated price cap, created
difficulties for shippers seeking to move crude from the Black
Sea to the Mediterranean, with Turkey demanding specific
confirmation of insurance before allowing ships to transit the
Bosphorus and Dardanelles.

Insurers were initially reluctant to provide the letters
requested by Ankara, leading to long delays for ships seeking to
enter the Turkish Straits, which also caught up tankers carrying
Kazakhstan’s crude, including CPC Blend, which is explicitly
exempt from sanctions. The backlog of ships began to clear after
a standoff between insurers and the Turkish authorities appeared
to be resolved.

There have also been complications between how Russian oil
trades in the real world and the practicalities of the price
cap, making some traders wary. The distances involved in
transporting oil to Asia from Russia’s western ports drove up
freight costs, forcing prices of the nation’s flagship Urals
grade to slump below the cap.

The volume of crude on vessels heading to China, India and
Turkey, the three countries that have emerged as the only
significant buyers of displaced Russian supplies, plus the
quantities on ships that are yet to show a final destination,
fell in the four weeks to Dec. 16 to average 2.53 million
barrels a day. While that’s more than four times as high as the
volume shipped in the four weeks immediately prior to Russia’s
invasion of Ukraine in late February, it is the first time in
five weeks that the amount has fallen. Inflows to the Kremlin's
war chest also slumped.

Tankers hauling Russian crude are becoming more cagey about
their final destinations. The volume of crude on vessels leaving
the Baltic and showing their next destination as Egypt’s Port
Said or the Suez Canal jumped to 686,000 barrels a day on a
four-week average basis. It remains likely that many will begin
to signal Indian ports once they pass through the waterway,
while shipments to the United Arab Emirates are becoming more
common.
Crude Flows by Destination:
On a four-week average basis, overall seaborne exports fell
by 266,000 barrels a day. Shipments to Europe have dried up
almost completely, while those to Asia also slipped.
All figures exclude cargoes identified as Kazakhstan’s
KEBCO grade. These are shipments made by KazTransoil JSC that
transit Russia for export through Ust-Luga and Novorossiysk.
The Kazakh barrels are blended with crude of Russian origin
to create a uniform export grade. Since the invasion of Ukraine
by Russia, Kazakhstan has rebranded its cargoes to distinguish
them from those shipped by Russian companies. Transit crude is
specifically exempted from the EU sanctions.
* Europe

Russia’s seaborne crude exports to European countries fell
to 146,000 barrels a day in the 28 days to Dec. 16, with
Bulgaria the sole European destination. These figures do not
include shipments to Turkey.

A market that consumed more than 1.5 million barrels a day
of short-haul crude, coming from export terminals in the Baltic,
Black Sea and Arctic has been lost almost completely, to be
replaced by long-haul destinations in Asia that are much more
costly and time-consuming to serve.

No Russian crude was shipped to northern European countries
in the four weeks to Dec. 16.

Exports to Mediterranean countries continued to fall,
slipping to 136,000 barrels a day on average in the four weeks
to Dec. 16 and setting another low for the year so far. Flows to
the region fell for a sixth week.

Turkey was the only destination for Russian seaborne crude
into the Mediterranean, but flows there also fell, dropping to
the lowest since June on a four-week average basis. Shipments to
the country in the four weeks to Dec. 16 were half the levels
seen at the start of November; however, the country is expected
to continue to be an important destination for Russian crude
going forward.

Flows to Bulgaria, now Russia’s only Black Sea market for
crude, slipped back from a seven-week high to 146,000 barrels a
day. Bulgaria secured a partial exemption from the EU ban, which
should support inflows now that the embargo has come into force.

* Asia

Four-week average shipments to Russia’s Asian customers,
plus those on vessels showing no final destination, which
typically end up in either India or China, fell back from the
previous week’s high, but remained close to 2.3 million barrels
a day.

The equivalent of more than 580,000 barrels a day was on
vessels showing destinations as either Port Said or Suez, or
which have already been or are expected to be transferred from
one ship to another off the South Korean port of Yeosu. Those
voyages typically end at ports in India and show up in the chart
below as “Unknown Asia.”

The “Unknown” volumes, running at 104,000 barrels a day in
the four weeks to Dec. 16, are those on tankers showing a
destination of Gibraltar, Malta or no destination at all. Most
of those cargoes go on to transit the Suez Canal, but some could
end up in Turkey.

Cargoes heading for Asia that were bought at a price above
$60 a barrel at the point of loading will have to be delivered
before Jan. 19, if they are to retain their International Club
insurance. Alternative insurance arrangements will need to be
made for any cargoes that are discharged after that date.

Flows by Export Location
Aggregate flows of Russian crude dropped sharply, falling
by 1.86 million barrels a day, or 54%, in the seven days to Dec.
16 to their lowest for the year. Shipments were lower from ports
in all four regions, the Baltic, Black Sea, Arctic and the
Pacific. Figures exclude volumes from Ust-Luga and Novorossiysk
identified as Kazakhstan’s KEBCO grade.Export Revenue
Inflows to the Kremlin's war chest from its crude-export
duty slumped by $77 million, or 54%, to $66 million in the seven
days to Dec. 16, while the four-week average income fell by $11
million to $112 million. Export duty revenues were the lowest
for the year by either measure.

The December duty rate is $5.91 a barrel, according to
figures released by the Russian Ministry of Finance, based on an
average Urals price of $71.1 a barrel, according to figures from
the Russian Ministry of Finance. The duty rate for January will
fall by 61% to $2.28 a barrel, its lowest since June 2020, when
oil prices were hit by the Covid-19 crisis.

However, the drop is due in part to a change in the formula
used to calculate duty rates for 2023, with the country moving
away from taxing exports and shifting the burden to production
as part of its multi-year tax maneuver. The plan sees export
duty phased out entirely by the start of 2024.

Origin-to-Location Flows
The following charts show the number of ships leaving each
export terminal and the destinations of crude cargoes from the
four export regions.

Just 15 tankers loaded 11.2 million barrels of Russian
crude in the week to Dec. 16, vessel-tracking data and port
agent reports show. That’s down by 13 million barrels, or 54%,
from the previous week. Destinations are based on where vessels
signal they are heading at the time of writing, and some will
almost certainly change as voyages progress. All figures exclude
cargoes identified as Kazakhstan’s KEBCO grade.

The total volume on ships loading Russian crude from Baltic
terminals fell by 42%, to its lowest for any week this year.
Flows from Primorsk slumped, with just three tankers taking
on cargoes. A gap in the port’s loading program, which matches
similar ones in previous years, suggests maintenance at the
export terminal may be responsible for the drop.

Shipments from Novorossiysk in the Black Sea slumped to a
4-week low after the previous week’s surge. Just two tankers
loaded Russian crude cargoes at the port in the week to Dec. 16.
Arctic shipments slipped back from a five-week high in the
seven days to Dec. 16 with two vessels leaving from Murmansk
during the week. Both ships are heading to Asia via the Suez
Canal.

Shipments from the Pacific slumped to equal their lowest
level for the year. Shippers appear to be struggling to find
vessels willing to carry cargoes that are selling at prices
above the $60-a-barrel cap imposed by the G7 countries. Just
four tankers loaded at Russia’s Pacific terminals, with only two
loading ESPO crude at Kozmino, down from a more normal level of
eight or nine ships a week leaving the port.

All of the cargoes heading for unknown destinations ((TK))
are on ships going to Yeosu in South Korea, where it’s likely
that they will conduct ship-to-ship transfers outside the port,
as previous tankers have done, or on vessels that have already
taken cargoes in this way.

All cargoes of Sokol crude loaded since shipments restarted
in October have been moved in this way. Initially, the receiving
vessel carried them onward to ports in India and China. More
recently, they have remained anchored off the port, or moved
south to Johor in Malaysia to sit at anchor there. The area is a
popular transshipment area for crude cargoes.

Note: This story forms part of a regular weekly series
tracking shipments of crude from Russian export terminals and
the export duty revenues earned from them by the Russian
government. The next version of this story will be published on
Tuesday Jan. 3