The Q3 increase in oil prices meant some tankers must stop carrying Russian barrels to avoid infringing G7-imposed price caps and while that will see more vessels return to mainstream trades it also offers higher margins for operations in the shadows, the CFO at tanker company d’Amico said.
It was difficult to monitor what other parties in the supply chain have been doing and so carrying Russian cargoes in the current price environment exposes ship owners to potential non-compliance and resulting penalties, Carlos Balestra di Mottola told S&P Global Commodity Insights Sept. 13 at an industry event during London International Shipping Week.
“Some ships from the grey fleet might therefore come back to the main fleet but that would tighten the supply of vessels servicing Russian barrels, making that business more profitable,” he said.
“Eventually, more owners would be tempted to take the risks of transporting Russian cargoes and more vessels would be sold to owners operating in the black market.”
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Based on price cap regimes, maritime and financial services firms subject to G7 and EU jurisdictions cannot facilitate seaborne Russian oil trades if crude is sold above $60/b, premium products above $100/b and other products above $45/b.
Platts, part of S&P Global, assessed Urals FOB Primorsk at $79.42/b on Sept. 12, Platts has assessed it above $60/b since July 10. That has come alongside rises across the crude complex. Platts assessed dated Brent at $93.60/b on Sept. 12. Products also have pushed above their price cap.
The market split into three broad categories when the price caps came into effect, for crude in December and for products in February, according to market sources.
Namely, a mainstream fleet avoiding all Russia-related business, an opaque fleet carrying Russian barrels and avoiding mainstream trades, and one in between, which were in full-compliance with sanctions law in carrying Russian barrels that were cheaper than the price cap and thus able to use maritime financial services in the UK and EU.
The higher prices look set to stay. Analysts at S&P Global expect Brent to remain above $80/d through 2023, dropping to $76-$78/b in Q1 2024 and then remaining above $80/b for the rest of 2024, they said Aug. 29.
In Q2 2023, when Urals averaged $52.05/b, to be at a $26.15/b discount to Brent, opaque transfers of Russian oil at sea more than tripled, with at least 47 million barrels of Russian crude and products transferred by vessels with a record of turning off their location transponders, compared with 15 million barrels in Q1, S&P Global Market Intelligence and Commodity Insights data suggests.
In the clean tanker market, the effect of the recent firm crude prices has so far been bullish as vessels that previously carried Russian cargoes and at the same time competed for other cargoes in the mainstream fleet have not been visible in the mainstream market for some weeks, shipping sources said.
Platts assessed the rate to carry a clean 37,000 cargo on the UK Continent-US Atlantic Coast at Worldscale 180 on Sept. 12, up from w115 on July 14.