Russian crude exports are continuing unabated and hit a war-time high of around 3.89 m/bd in October according to Vortexa data. This is sending Russia crude oil in transit to a 2.5 year high to around 115 million bbls.
Russian crude in transit predicted for India is also at a 2.5 year high of around 68 million bbls. Vessels in transit are still declaring for India after passing the Suez Canal while declaring for Suez while still in Europe. This is normal behaviour and doesn’t yet point to large-scale diversions or rerouting.
However, this comes at the same time both state-owned and private refiners in India are indicating future Russian crude purchases will be halted. Importers have until 21 November to wind down transactions from these sanctioned producers according to OFAC. A few vessels have U-turned or are idling outside India discharge ports, so there may already be caution exercised by buyers.
Source: Vortexa
Additionally, the difference between Russia’s exports this month towards India and India’s imports of Russian crude oil is 444 k b/d, meaning there is close to 500 k b/d of crude oil heading towards India that is unlikely to be absorbed. This figure is likely to grow with more caution by importers, meaning cargoes will need to reroute (likely towards Shandong).
Source: Vortexa
Reports of the Indian Oil Company (IOC) still buying a few Russian crude cargoes from non-sanctioned producers for December delivery mean Russian flows to India may not completely dry up, but we can assume on the whole India will largely avoid Russian imports because most Russian volumes now come from producers under US sanctions.
There has already been a precipitous drop in cargoes in transit towards India’s private refiners. This had already been falling since late September but has dropped 60% (based on a 7-day moving average) since US sanctions were announced.
India will not struggle to replace Urals with similar medium-sour grades from the Middle East, but the loss of the Russian discount will sorely pressure the country’s refining margins.
High enquires for both Middle East and Atlantic Basin crudes by India refiners keeps us confident that tankers will continue to benefit from this demand. VLCC spot rates from the Middle East (TD3C) have increased by over 50% since the US sanctions.
Chinese state-owned refiners back away
Russia ESPO blend crude, exported from the port of Kozmino in the East, last week fell to a discount to 50 cent/bbl to Brent compared to a premium of over $1/bbl before US sanctions. This is due to caution from Chinese state-owned refiners, which are reportedly cancelling some purchases. Argus reports that some ESPO volumes have been purchased by India’s state-owned refiners, but most Far East volumes that would usually go to Chinese state-owned refiners will likely head to the Shandong independent teapot refiners. There are questions around whether the teapots can absorb all this extra ESPO crude, on top of the high volumes of other sanctioned barrels (other Russian grades, Iranian crude, Venezuelan crude) already building at sea.
Vessels speed up to return to Russia
If delays in discharge or resale of Russian cargoes materialise, this will further tighten the fleet availability for vessels to return to load in Russia.
Since US sanctions were announced, the speed of unsanctioned ballast vessels that are returning to Russia to load again increased by 11% in the last week. These vessels may be rushing to load before the wind down period ends, but it also reflects the scarcity of tonnage. Considering we are observing a 2.5 year high in Russia crude on the water and there are questions around where Russian crude from sanctioned producers can find a home, we will likely see discharge delays and longer voyage times.
It appears a serious problem is emerging with Russia’s ability to have available tonnage if it wants to keep exports up and bring in revenue amid tightening screws.