Shipping of containerized freight into Russia has ceased. Tanker cargo shipping out of Russia is booming. It appears that the globe does not miss-selling consumer products to Russians but cannot stop buying Russia’s oil outright.
Sanctions do not prevent container ships from calling in Russia. Nonetheless, they’ve stopped, suffocating import alternatives. According to FourKites, Russian consumer goods imports via all modes of transportation are down 87 percent compared to pre-invasion levels. Imports of industrial products are down 91%.
Sanctions do not preclude tanker companies, like liners, from calling in Russia. However, unlike container transportation, there are still more than enough tanker operators willing to go.
“We’re not taking the moral high ground,” said Lars Barstad, CEO of tanker business Frontline (NYSE: FRO), during a conference call on Tuesday. “We’re doing what the politicians want us to do.” We have opted to follow the sanctions. We will follow whatever the EU, the US, or the UK decide.”
“I think one has to keep in mind that the EU has been purchasing substantial volumes of gas and oil from Russia since the beginning of this war,” he continued. These are the molecules that the world requires.”
Russia’s exports remain high even after the invasion.
According to Kpler data provided to American Shipper, Russia exported 3.77 million barrels per day (b/d) of petroleum in April, the highest monthly total since June 2019. (excluding the CPC blend with Kazakh oil).
Preliminary Kpler data for May show combined crude and product exports of 5.95 million b/d. This is merely a 4% decrease from February, when Russia invaded Ukraine, with the decrease owing to a drop in product exports. Russia’s overall crude and product exports are actually up 1% year on year this month.
“Russian oil and product shipments from the Black Sea and Baltic are not down that much” since the invasion, according to Barstad.
According to Reid l’Anson, senior commodity analyst at Kpler, “Russian seaborne oil shipments remain strong.” For the time being, India is stepping in to buy the majority of the Russian oil that the EU-27 countries have avoided. There is also some evidence that China is increasing buying.”
Private tanker owners fill the void.
Even though there are no sanctions against Russian oil, the potential risk is still too big for most publicly traded tanker firms.
Frontline, according to Barstad, has “essentially abstained from taking the risk.” International Seaways (NYSE: INSW) CEO Lois Zabrocky stated earlier this month, “Since the outbreak of unrest in late February, International Seaways has not booked any Russian cargoes loading in any Russian ports.”
Barstad did admit, though, that Frontline had loaded one Russian cargo in the previous month. “On one occasion, yeah.” But that was under contract. You are sometimes not in a favorable legal position if you do not call. It’s a contractual concern.”
As publicly traded companies in the United States withdraw, private European tanker owners have filled the void.
“Russian crude is still authorized to trade.” You have permission to load and move it. So, owners who don’t believe they are taking on much danger – these are the independent owners — weigh the risk they can bear against the premium they can earn. And they’ve moved into this commerce,” said Barstad.
“I’m definitely not going to condemn how owners choose to handle their business,” he continued.
According to a Lloyd’s List investigation based on monitoring data, the majority of Russian oil is now being transported aboard ships owned by private Greeks.
‘An extremely inefficient trade’
Russian crude is transported on tankers in the Aframax (750,000-barrel-capacity) and Suezmax (1 million-barrel-capacity) sectors.
Because there are no US restrictions targeting Russian petroleum shipping, such as those targeting Iranian and Venezuelan tanker exports, owners of Aframaxes and Suezmaxes profit from the war. Even those who are staying away from Russia’s cargoes.
Europe has replaced much of its Russian-sourced petroleum with imports from the Middle East, the United States, and West Africa. Russia has shifted its export destinations from Europe to Asia. “This is a tremendously inefficient deal,” Barstad observed.
Tanker demand is measured in ton-miles, which is volume multiplied by distance. According to Barstad, 6% of the world’s oil and product cargoes (i.e., the quantities that are being rerouted) “today travel at least 50% longer, if not double the distance.” Some would even argue 2.5 times the former distance.”
The independent owners who converted to the high-paying Russian export trade “are sucking tonnage out of typical bread-and-butter non-Russian trades,” according to Barstad. Lower available tanker capacity affects pricing in trades that have nothing to do with Russia.
“So you practically have the same effect on the tanker market [outside Russia] as if you went to Russia and lifted the barrels yourself.”
