Tightened US Sanctions Disrupt Discounted Russian Oil to Asia, Boosting Middle Eastern and African Crude Demand

Singapore/New Delhi, India: Enhanced US sanctions on Russia have disrupted the significant trade of discounted Russian oil to China and India, prompting increased demand for Middle Eastern and African crude. These sanctions targeted tankers carrying Russian oil, aimed at further limiting Moscow's oil revenue.

Floating Barrels and Alternative Sources

The new rules have led to millions of barrels being stranded on ships, leading traders to seek alternative sources. Russian crude, previously a significant supply for China and India, has seen its dealings slow down for March.

Market Dynamics Shift

This situation has altered market dynamics. For a period, high-sulfur Dubai benchmark surpassed the low-sulfur Brent benchmark, creating opportunities for producers from Brazil and Kazakhstan to gain market share in China and India.

Premiums Rise for Non-Russian Crude

Premiums for Brazilian crude surged against Brent, while China is set to import its first cargo of Kazakhstan's CPC Blend since June 2024. TotalEnergies' trading arm, TOTSA, has also received increased inquiries for its Middle Eastern crude cargoes.

Middle Eastern Prices Surge

Premiums for Middle Eastern benchmarks Oman, Dubai, and Murban more than doubled in January, reflecting the increased demand. Saudi Aramco also raised prices for Asia-bound crude to their highest since December 2023.

Angola Benefits from Asian Demand

An Angolan crude seller reported increased demand from Asian buyers, particularly for West African cargoes.

Increased Vessel Costs for Sanctioned Shipments

Traders have resorted to alternative vessels for sanctioned shipments, resulting in significantly higher costs, adding millions of dollars to each shipment.

India's Refineries Face Challenges

The rising costs pose challenges for Indian refiners who had shifted from Middle Eastern sources to Russian oil. The country's oil secretary has indicated that refiners prefer Russian oil supplied by non-sanctioned companies and vessels.

Russia Urals Discounts Narrow

Sanctions have reduced the number of available cargoes and vessels, narrowing discounts for Russian Urals crude against Brent.

Secondary Sanctions Concerns

Indian buyers have declined Russian shipping giant Sovcomflot's offers to receive payments in alternative currencies, citing concerns about secondary sanctions.

Russian Oil Floating Storage Increases

Goldman Sachs estimates that Russian oil stored aboard ships has increased by 17 million barrels since January 10.

Iran's Oil Output Targeted

Tightening US pressure on Iran is also reducing oil imports to China, with estimates of increased Iranian floating storage. Tighter sanctions enforcement could further reduce Iran's output.

Shandong Refiners Face Losses

The squeeze on cheap crude into China has prompted independent refiners to shut down for maintenance to avoid losses.

China's State Refiners Withdraw

Chinese state refiners are likely to avoid Russian oil due to reduced counterparties and insurers, as well as stricter measures at key ports.

Market Volatility Predicted

Experts predict increased market volatility due to government intervention and the evolving sanctions landscape. The impact of the sanctions may reduce Russian exports by up to 1.5 million barrels per day in the near term.