Russia has increased oil supplies to key customers in recent weeks, opposing its pariah status in global energy markets. An increasingly popular method of delivery: tankers labeled “unknown destination”.
Oil exports from Russian ports to European Union member states, which have historically been Russia’s largest buyers of oil, rose to an average of 1.6 million barrels a day so far in April, according to TankerTrackers.com. Exports fell to 1.3 million a day in March after the invasion of Ukraine. Similar data from Kpler, another provider of commodity data, shows that flows rose to 1.3 million a day in April from 1 million in mid-March.
But an opaque market is emerging to hide the origins of this oil. Unlike before Russia’s invasion of Ukraine, oil buyers are worried about the reputational risk of a government-funded crude oil trade that Western leaders accuse of war crimes.
Oil from Russian ports is increasingly being delivered to unknown destinations. In April, more than 11.1 million barrels have been loaded into tankers without a planned route, more than any other country, according to TankerTrackers.com. This is more than almost nothing before the invasion.
Using the label for an unknown destination is a sign that the oil is being transported to larger ships at sea and being unloaded, analysts and traders say. Russian crude oil is then mixed with the ship’s cargo, obscuring where it came from. This is an old practice that allows exports from sanctioned countries such as Iran and Venezuela.
The ship Elandra Denali was off the coast of Gibraltar last week when it received three cargoes of oil from tankers leaving the ports of Ust-Luga and Primorsk in Russia, according to ship operators, people involved in transhipment and two tracking companies. Ship records show that he has left Incheon, South Korea, and plans to arrive in Rotterdam, a key refining port in the Netherlands.
According to traders, new varieties of refined products, called Latvian and Turkmen blends, are also being offered on the market, with the understanding that they contain significant amounts of Russian oil, they said.
Oil sales to Russia are the lifeblood of the economy and government spending. The country is struggling to sell oil at the same volumes and prices as before the war, creating reserves in the local oil industry.
The United States, Britain, Canada and Australia have banned the import of Russian oil. The EU is more dependent on Russian energy, importing 27% of its oil from the country. European leaders are discussing whether to impose an embargo, but have not yet taken action, as they balance the desire to isolate Russia without hurting their own economies through higher energy prices.
Despite the lack of sanctions, many European energy companies have limited themselves in the weeks since the invasion, as bank financing for deals has dried up and insurance costs have risen. Russia’s oil exports declined in March, leading to rising domestic storage levels and lower production in some refineries.
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The increase in shipments to Europe in April, as well as those marked without a destination, indicate that some companies are finding workarounds.
“For the European Union to fully sanction Russian oil would be like saying tomorrow that you are reducing your salary by 40% and you must continue to live as if nothing has happened,” said Giovanni Staunovo, a commodities analyst at UBS Group AG. . “Meanwhile, there are huge discounts for Russian oil on the market. Some will find this environment very attractive. ”
According to traders, the popular Russian oil brand, known as the Urals, is valued at between $ 20 and $ 30 below the Brent benchmark. Prior to the invasion, it was usually consistent with the clerk or a dollar or two below. Russia has struck some deals to sell oil to buyers in India.
Much of Russia’s oil is still marked with clear destinations in transport documents. Barrels destined for Romania, Estonia, Greece and Bulgaria doubled this month from March averages. Volumes also rose significantly for the Netherlands, Europe’s largest buyer, and Finland.
Some buyers are rushing to close their business in anticipation of potential new restrictions, while others say they are executing deals made before the invasion. Sanctions would force them to breach these agreements.
“The fact that they are buying more than before the invasion suggests that this is not just because of long-term contracts,” said Simon Johnson, a professor of economics at MIT who studies oil geopolitics and a former chief economist at the International Monetary Fund. “It’s also about cheap energy. As long as there is no full embargo, this can continue. “
In recent weeks, major oil companies and commodity trading houses, including Royal Dutch Shell PLC, Repsol SA, Exxon Mobil Corp., Eni SpA, Trafigura Group and Vitol Group, have leased crude ships to transport Russian oil from Russian oil terminals in the Black Sea and The Baltic Sea to ports in the European Union, according to Global Witness, a research and advocacy group working with the Ukrainian government, and data from Refinitiv. The cargo arrived in Italy, Spain and the Netherlands this month, the data show.
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A Repsol spokesman said the recent shipments were tied to long-term commitments made before the invasion. Shell, Exxon and Eni said they were transporting oil from Kazakhstan through a Russian port. Trafigura said it traded less Russian oil than before the invasion. Vitol did not respond to a request for comment.
Shell said on April 7 that it would stop buying Russian oil on the spot market, but that it was legally obliged to accept crude oil supplies due to contracts signed before the invasion. The company classifies refined products as Russian in origin if the mixtures contain 50% or more, leaving the door open for trade in products such as diesel fuel if it contains 49.9% Russian oil or less.
The Ukrainian government sent a letter to Shell CEO Ben van Beurden on April 13 criticizing the move, saying “the idea that any company will continue to fund Putin’s military machine through an accounting ploy is deplorable.”
“This is a national shame for many governments and institutions that are financing these aggressions against us,” said Oleg Ustenko, an economic adviser to the Ukrainian president.
A Shell spokesman said “the company’s self-imposed restrictive measures go beyond all European Union measures in force today.”
EU officials are drawing up a plan for a potential embargo, but time is still being considered due to the upcoming elections in France and the repulse of Germany. The embargo is likely to be implemented only over time. Some worry that traders are already figuring out ways to keep oil flowing.
“Even if we see an oil embargo from the EU, will they remember to sanction the tankers?” “More transfers from ship to ship offshore, that’s a reasonable expectation,” Mr Johnson said.
– Benoit Focon contributed to this article.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
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