Global Oil Market in Chaos as US Expands Sanctions on Russia
The global oil market is reeling after the US expanded sanctions on Russia’s oil industry, sending freight rates for supertankers soaring. Chinese and Indian refiners are scrambling to find alternative fuel supplies, as they adapt to the severe new sanctions on Russian producers and tankers.
Shadow Fleet Under Pressure
Many of the newly-targeted vessels, part of a so-called shadow fleet that seeks to avoid Western restrictions, have been used to ship oil to India and China. These tankers have also shipped oil from Iran, which is under sanctions as well. According to analysis by Lloyd’s List Intelligence, an estimated 35% of the shadow fleet tankers involved in shipping Russian, Venezuelan, and Iranian oil have been hit with sanctions by either the US, Britain, or the European Union.
Freight Rates Skyrocket
Freight rates for Very Large Crude Carriers (VLCCs) have jumped significantly, with Unipec, the trading arm of Asia’s largest refiner Sinopec, chartering several supertankers on Friday. Unipec has also snapped up several sweet crude cargoes from Europe and Africa, including 2 million barrels of Norwegian Johan Sverdrup and 1 million barrels of Senegal’s Sangomar crude.
Middle East Crude Benchmarks Rally
Middle East crude benchmarks have rallied for a second session, with premiums for Dubai, Oman, and Murban rising towards $4 a barrel to Dubai quotes, the highest levels in more than a year. Since Friday, Unipec has booked eight tankers to ship oil from the Middle East, tanker booking data showed on Tuesday.
Shipping Rates Surge
Shipping rates for Russian oil shipments to China have also jumped following the sanctions. Freight rates for Aframax-sized tankers to ship ESPO blend crude from Russia’s Pacific port of Kozmino to North China more than doubled on Monday to $3.5 million. The rate on the Middle East to China route has surged 39% since Friday to $37,800, the highest since October.
Tightening Supply
Adding to the tightness, sanctioned tankers are stranded outside China’s eastern Shandong province, unable to discharge following a ban imposed by Shandong Port Group before Washington’s announcement on Friday. Analysts expect new ships will be pulled into the shadow fleet over the coming months, many of which will be new to this trade, tightening supply in the non-sanctioned freight market.
Global Impact
The global impact of these sanctions is being felt, with freight rates for VLCCs from the Middle East to Singapore gaining the most, up worldscale (WS) 11.15 from Friday to WS61.35. On the Middle East to China route, freight jumped to WS59.70, up WS10.40, while the rate for VLCCs carrying West African oil to China rose WS9.55 to WS61.44. Shipping crude from the U.S. Gulf to China will now cost $6.82 million per voyage, up $360,000 since last week.
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