Russia’s oil exports are set to decline by as much as 1mn barrels a day this winter even as the country expands its “dark fleet” of tankers, according to the world’s biggest independent energy trader.
Russell Hardy, chief executive of Vitol, said that while Russia had made progress in shielding itself from the effects of tougher sanctions affecting its seaborne crude that come into effect from December, exports are still likely to fall by 500,000 b/d to 1mn b/d this winter.
“The expectation is that nearly all European companies will turn their back on business that is not compliant,” Hardy told the Financial Times. “We think [Russia’s] logistical solutions are growing, they’re eating away at the problem. But whether or not they’ve eaten away at the whole problem we don’t know.”
Western countries are torn between trying to restrict Moscow’s revenues following its invasion of Ukraine and concerns that losing Russian oil could cause a price surge when countries are already grappling with energy-driven inflation.
The US is leading the G7 group of countries in plans to initiate a price cap on Russian oil exports before an EU ban on insurance for tankers carrying Russian oil takes effect on December 5. That would allow companies shipping Russian oil to retain access to western markets and institutions if the oil is sold below market prices.
Russian president Vladimir Putin has said, however, that Moscow will not sell oil under the price cap plan.
Hardy said Russian oil companies would be “under the gun to find a solution” and he expected to see a growing number of ship-to-ship transfers and other methods used to mask Russian oil. The largest supertankers cannot access Moscow’s Baltic ports, but Hardy said he expected Russia to use its fleet of smaller vessels to ferry oil to waiting very large crude carriers (VLCCs) near EU waters, a potential environmental risk.
Russian oil exports have largely held up since the invasion even as many European buyers have turned their backs on Moscow, with India and China increasing imports.
Both India and China have state-backed fleets of VLCCs, though it remains unclear whether they will let Russia utilise them without access to western insurance and reinsurance markets.
Vitol was once one of the largest shippers of Russian oil but says it has stopped dealing in cargoes from companies such as state-backed Rosneft. Vitol traded 7.6mn b/d of oil globally in 2021, giving it good visibility of often opaque physical markets.
Bjarne Schieldrop, an analyst at Norway’s SEB, said he expected oil prices to average $115 a barrel in the first quarter of next year — up from $95 today — due to disruptions to Russian supplies, which comprise about 5.5mn b/d by sea and 2.5mn b/d by pipeline in a 100mn b/d global market.
Schieldrop said the existing “dark fleet” was estimated to total about 270 tankers, according to shipbroker BRS, many of these are tied up transporting Iranian and Venezuelan oil that is subject to sanctions. Traders suspect Russian companies have been looking to secure older tankers that are due to be scrapped.
“There will be a lot of friction. A lot of under the radar activity,” Schieldrop said. “And there will be disrupted flows of Russian crude oil to the market.”
Hardy said oil prices could remain under pressure this winter, however, despite the expected shortfall in Russian supplies and moves by the Opec+ group of big producers to restrict production to prop up the price.
He said Vitol’s estimates for oil demand in the fourth quarter were about 2mn b/d lower than earlier this year, reflecting weak demand in the aviation sector, the US petrol market, and in China.
“Our long-term view is still supportive of oil prices for the next five years,” said Hardy. “However, we’re fighting poor demand today and economic doom and gloom.”