Russell Hardy, chief executive of Vitol, said that while Russia had made progress in shielding itself from the effects of tougher sanctions affecting its seaborne crude that take effect from December, exports were still likely to fall by 500,000 bpd. barrels per day to 1 million b. d this winter. “The expectation is that almost all European companies will turn their backs on non-compliant businesses,” Hardy told the Financial Times. “We think [Russia’s] logistical solutions grow, they eat the problem. But whether or not they have eaten the whole problem we don’t know.” Western countries are torn between trying to limit Moscow’s revenue after its invasion of Ukraine and concerns that the loss of Russian oil could push up prices when countries are already grappling with energy inflation. The US is leading the G7 group of countries in plans to introduce a price cap on Russian oil exports before an EU ban on insuring tankers carrying Russian oil takes effect on December 5. This will allow companies that ship Russian oil to maintain access to Western markets and institutions if oil is sold below market prices. But Russian President Vladimir Putin said Moscow would not sell oil under the proposed price cap. Hardy said Russian oil companies will be “under the gun to find a solution” and expects to see an increasing number of ship-to-ship transfers and other methods used to cover Russian oil. Larger supertankers cannot access Moscow’s ports in the Baltic, but Hardy said he expected Russia to use its fleet of smaller vessels to carry oil to waiting very large crude carriers (VLCCs) near EU waters. a potential environmental hazard. Russian oil exports have largely held back since the invasion, even as many European buyers have turned their backs on Moscow, with India and China increasing imports. Both India and China have state-backed VLCC fleets, although it remains unclear whether they will let Russia use them without access to Western insurance and reinsurance markets. Vitol was once one of the biggest charterers of Russian oil but says it has stopped trading cargoes from companies such as state-backed Rosneft. Vitol traded 7.6 million b/d of oil globally in 2021, giving it good visibility into the often opaque physical markets. Bjarne Schieldrop, an analyst at Norway’s SEB, said he expects oil prices to average $115 a barrel in the first quarter of next year – from $95 today – due to disruptions in Russian supply, which includes about 5.5mn b/d by sea and 2.5mn b/d by pipeline in a global market of 100mn b/d. Schieldrop said the existing “dark fleet” was estimated to total about 270 tankers, according to shipbuilding firm BRS, many of them linked to the transportation of oil from Iran and Venezuela subject to sanctions. Traders suspect that Russian companies were trying to secure older tankers that are due to be broken up. “There will be a lot of friction. A lot of activity under the radar,” Schieldrop said. “And Russian crude oil flows to the market will be cut off.” Hardy said oil prices could remain under pressure this winter, however, despite an expected shortfall in Russian supplies and moves by major producer group OPEC+ to cut output to support the price. He said Vitol’s fourth-quarter oil demand estimates were about 2 million b/d lower than earlier this year, reflecting weak demand in the aviation sector, the U.S. gasoline market and China. “Our long-term view remains supportive of oil prices for the next five years,” Hardy said. “However, we are fighting bad demand today and economic doom and gloom.” Video: How Putin held Europe hostage over energy | FT power source
