Sign up now for FREE unlimited access to Reuters.comSign up MOSCOW, Sept 23 (Reuters) – Russia has increased oil shipments to Asia since Europe imposed sweeping sanctions, but still needs to reroute more than a quarter of its crude exports away from Europe – or about 1.3 million barrels per day – when the full oil embargo hits in December. Russia exports about 20 million tonnes of crude a month – about five million barrels per day (bpd) – through several routes, including the Druzhba pipeline to Europe and others to Asia. In August, Russia’s total exports through European ports and the Druzhba pipeline amounted to 12.05 million tons, of which about 5.5 million tons (1.3 million bpd) were transported to countries that will stop importing Russian oil from December 5. Russia needs to find new buyers for this crude, which could require cheap prices and special terms, while also facing more expensive logistics for delivery to more distant destinations, traders said. Sign up now for FREE unlimited access to Reuters.comSign up “Russian Urals oil has always been a category for Europe. Now to reach new markets you have to send a cargo outside Europe amid growing concerns about transport costs, insurance and timing,” said a trader in the Russian market oil. The United States and the European Union are also working on a price cap for Russian oil, arguing it would help reduce revenue for Moscow while keeping global energy prices low. Moscow has said it will not sell oil to countries that impose a cap, and traders say they cannot see the measure working. “Russia is very unlikely to work with a price cap, it doesn’t make sense for Moscow both politically and economically. It’s much easier for it to negotiate private deals than to publicly commit to some price cap dictated by the West,” another trader involved in the Russian oil trade told Reuters. Russia exported 8.85 million tonnes of Urals oil in August from its European ports, of which India, China and Turkey – which are not expected to join the embargo – bought about half, with the rest going to Europe. Russia also supplies Europe with about 3.2 million tons of oil per month through the Druzhba pipeline. The route is technically exempt from the embargo as Hungary, Slovakia and the Czech Republic want to continue buying from it. But the top buyers from Druzhba – Germany and Poland – want to stop buying from 2023, which means that about two million tonnes a month will have to find new buyers.
NEW WAYS
Rerouting oil from Druzhba will be a difficult task as Russian oil ports have limited export capacity and sellers will need to arrange for more tankers, traders said. Russia cannot reroute large quantities of Urals to its East Siberian Pacific Ocean (ESPO) pipeline, which is already drawing near capacity. This makes shipments via Europe and the Suez Canal the only possible routes for Urals crude to Asia. Even if Moscow offers more favorable terms, India and China are unlikely to be able to buy much more Russian crude as they have long-term contracts with rival producers such as Saudi Arabia and the United Arab Emirates. “Russian companies are already offering discounts, shipping costs and insurance coverage, payment options and other perks to keep buyers,” said a source at an Asian oil trading firm. Russian companies will also have to change the way they sell crude. Asian oil markets have a much earlier trading cycle than the European market: since mid-September Asian buyers have been trading December loadings, while Europe is still pricing October loadings. To avoid relying solely on China, India and Turkey for sales, Russia has sought to attract smaller players, traders said. Sri Lanka has said it will start buying oil from Russia, but has bought only about 300,000 tonnes of Urals so far this year, according to data from Refinitiv Eikon. Cuba has bought 200,000 tons of Urals this year. “Small players are definitely not enough to absorb Russian oil. China is the last resort for Russian oil or Moscow has to eventually cut production,” said a third trader involved in the Russian oil market. Sign up now for FREE unlimited access to Reuters.comSign up Reporting by Reuters reporters Editing by Mark Potter Our Standards: The Thomson Reuters Trust Principles.
