Explainer: The place will Russia promote its crude oil when the EU ban comes?

On this illustration taken on March 8, 2022, fashions of oil barrels are seen in entrance of an indication displaying “Cease”, the colours of the European Union and the flag of Russia. REUTERS/Dado Ruvic/Illustration

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MOSCOW, Sept 23 (Reuters) – Russia has elevated its oil exports to Asia since Europe imposed more durable sanctions, however will nonetheless need to repatriate 1 / 4 of its crude exports from Europe – or about 1.3 million barrels a day – in a December full oil embargo. Russia exports about 20 million tons of crude oil per thirty days — about 5 million barrels per day (bpd) — to Europe by way of the Drushpa pipeline and different routes to Asia.

In August, Russia’s whole exports by European ports and the Druzhba pipeline have been 12.05 million tonnes, of which about 5.5 million tonnes (1.3 million bpd) have been despatched to nations which have stopped importing Russian oil since December 5.

Russia wants to search out new consumers for that crude, which can require cheaper costs and particular phrases, whereas going through costly logistics to ship to extra distant locations, merchants mentioned.

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“Russian Urals oil has all the time been a benchmark for Europe. Now to achieve new markets, a cargo must be despatched out of Europe amid rising considerations about transport prices, insurance coverage and timing,” mentioned a dealer within the Russian oil market.

America and the European Union have additionally been concerned in a worth ceiling for Russian oil, arguing that it could assist Moscow cut back revenues whereas preserving world vitality costs low.

Moscow has mentioned it is not going to promote oil to nations that impose caps, and merchants say they don’t see the transfer working.

“It is vitally unlikely that Russia will work with a worth ceiling, which doesn’t make sense politically and economically for Moscow. It’s a lot simpler to barter personal agreements than to publicly comply with some worth limits dictated by the West,” one other dealer was concerned. Reuters mentioned in Russian oil buying and selling.

Russia exported 8.85 million tonnes of Urals oil from its European ports in August, of which India, China and Turkey – which is not going to be part of the embargo – purchased half and the remainder went to Europe. Russia delivers about 3.2 million tons of oil per thirty days to Europe by the Drushba pipeline. The route is technically exempt from the ban as Hungary, Slovakia and the Czech Republic wish to proceed shopping for from it.

However Druzhba – Germany and Poland – the primary consumers – wish to cease shopping for from 2023, which suggests discovering new consumers for about two million tons per thirty days.

New methods

Merchants mentioned re-routing oil from Drushpa might be a troublesome activity as Russian oil ports have restricted export capability and sellers want to rearrange extra tankers.

Giant volumes of Urals can’t be returned to Russia’s East Siberian Pacific Ocean (ESPO) pipeline, which is already near capability. This makes exports by way of Europe and the Suez Canal the one viable route for Urals crude to Asia.

Even when Moscow presents extra favorable phrases, India and China can’t purchase a lot Russian crude as a result of they’ve many long-term contracts with rival producers Saudi Arabia and the United Arab Emirates.

“Russian firms are already providing reductions, delivery price and insurance coverage protection, cost choices and different incentives to retain consumers,” mentioned a supply with the Asian Oil Buying and selling Firm.

Russian firms additionally want to alter the way in which they promote crude oil.

Asian oil markets have a a lot earlier buying and selling cycle than the European market: Asian consumers commerce December-loading cargoes in mid-September, whereas Europe costs October loadings.

Russia has tried to court docket smaller gamers to keep away from relying solely on China, India and Turkey for gross sales, merchants mentioned. Sri Lanka has mentioned it can begin shopping for oil from Russia, based on Refinitiv Eikon information. Cuba has purchased 200,000 tonnes of Urals this yr. “Smaller gamers are definitely not sufficient to soak up Russian oil. The final resort for Russian oil is for China or Moscow to ultimately minimize manufacturing,” mentioned a 3rd dealer concerned within the Russian oil market.

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(Reporting by Reuters Correspondents Modifying by Mark Potter)

Our Requirements: Thomson Reuters Belief Ideas.

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