What’s Keeping China From Buying More Russian Crude? | OilPrice.com


What’s Keeping China From Buying More Russian Crude?

By Tsvetana Paraskova – Apr 13, 2022, 7:00 PM CDT

  • Russia is offering deep discounts for its crude following a wave of sanctions on its energy industry.
  • While China and India are still buying some discounted oil, logistical hurdles are becoming increasingly difficult to navigate.
  • Contractual obligations and shipping constraints are posing major problems for would-be-buyers of Russian oil. 

Outbound shipments of Russian oil have yet to show signs of a major decline, as many analysts feared last month. In fact, Russia’s shipments of crude oil rebounded in the first full week of April to the highest level so far this year, Bloomberg News’ tracker of crude leaving Russian ports showed on Monday.    Yet, a “buyers’ strike” in Europe with many majors refusing to deal with Russian spot cargoes is forcing Russian crude to make much longer and complicated voyages to reach willing buyers in Asia. While China and India are not shying away from Russian crude—which sells at hefty discounts attracting price-sensitive buyers—the logistics of shipping oil from Russia’s Black Sea and Baltic ports to Asia and the scarce tanker availability, bank guarantees, and insurance for Russian cargoes would limit the amount of oil that Asia could take and compensate for lost barrels that are no longer going to Europe, analysts say.  

Some volumes previously bound for the West will be replaced by Asia, but not all, analysts say. That’s because of the two-month-long trip to Asia (and a four-month round trip) which will necessitate many supertankers that are not readily available on the global tanker market, says Zoltan Pozsar, Global Head of Short-?Term Interest Rate Strategy at Credit Suisse. 

Before the war, 1.3 million bpd of Russian oil was shipped from the Baltic ports of Primorsk and Ust Luga to Europe on Aframax carriers, and these journeys to Hamburg or Rotterdam take a week or two to complete, Pozsar wrote in a market commentary on March 31. 

“If Russia now needs to move the same amount of oil not to Europe but China, the first logistical problem it faces is that it can’t load Urals onto VLCCs in Primorsk or Ust Luga because those ports aren’t deep enough to dock VLCCs. Russia will first have to sail Aframax vessels to a port for STS crude transfer (ship -to -ship crude transfer) onto VLCCs,” Pozsar says.

The STS transfer takes weeks, and after the transfer is done, the VLCC will sail two months east, discharge, and go back to the Baltics, which is another two months.  

The reshuffling of the Russian barrels is very attractive for buyers such as China and India due to the hefty discounts on Urals. But refiners in China and India face challenges in taking up too much Russian crude in the short term because of contractual obligations with Middle Eastern producers, according to Wood Mackenzie

In addition, China hasn’t shown yet too much appetite for Russian crude because of several factors, WoodMac said. These include expensive freight for Russian cargoes due to the sanctions, challenges with payments and tanker insurance, the fact that a Urals voyage takes double the time compared to Middle Eastern grades going to China, and Chinese refiners’ long-term contracts with oil exporters from the Middle East. 

Russia may still have willing buyers for its oil in developing Asia, and those buyers may not care about the ethics of buying Russian crude, but they will certainly care about tanker rates and availability and much longer voyages. 

By Tsvetana Paraskova for Oilprice.com



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