G7 tankers shun Russian oil amid tighter sanctions; more crude enters floating storage

Tightening sanctions on Russia are driving more Western tankers away from the country, resulting in a growing logistics bottleneck due to slow deliveries by non-G7 tankers, according to ship-tracking data and some tanker industry participants.

Tankers flagged, owned or operated by companies based in G7 countries and their allies, or insured by Western protection and indemnity clubs, lifted 24.4% of Russia's crude exports of 3.4 million b/d in November, according to data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite. The share was at a three-month low.

In October, the G7 ships were responsible for 27.5% of Russia's 4.1 million b/d of overseas shipments.

The grace period for US sanctions on Rosneft and Lukoil was over on Nov. 21, significantly increasing compliance risks for tanker companies transporting the top Russian oil producers' cargoes.

The seaborne exports of the two companies combined decreased to just 1 million b/d in the final week of November, compared with an average of 1.9 million b/d during the year, according to CAS data.

"Sanctions on Russia's key producers signal a major shift for the Trump administration, which had largely focused on Iranian oil and shipping since inauguration in January," consultancy Windward said in a note.

Logistics issues

The non-G7-fleet, mainly comprising shadow tankers transporting oil outside of the price cap, lifted 103 million barrels in November based on CAS and MIRS data. This was much lower than 128 million barrels last month, a record high.

Tanker market sources said those tankers could often lift oil from Russian ports before transporting the cargo to non-sanctioned ships, which would then discharge at receiving countries to mitigate sanction risks for buyers, prolonging delivery time.

Russian crude discharge volumes were around 3.6-3.7 million b/d between October and November, according to CAS data. Floating storage of crude and condensate loaded from Russian ports rose to 6.7 million barrels in November from 2.4 million barrels in October.

Currently, CAS records 11 tankers with 9.2 million barrels in floating storage, the highest in at least nine years. Of them, nine do not use G7 maritime services.

Despite the shadow fleet comprising nearly 1,000 ships, their operational efficiency has fallen sharply amid tightening US sanctions, with a growing number of them becoming idle and unable to find trading routes, according to Anoop Singh, global head of shipping at Oil Brokerage.

Sanctions compliance

The US has maintained the cap for Russian crude prices at $60/b, under which tanker companies, marine insurers and other service firms can continue to facilitate the country's seaborne exports. The EU and other G7 countries lowered the threshold to $47.6/b in early September.

Platts assessed Urals crude on a FOB Primorsk basis at an average of $49.49/b in November, a discount of $14.17/b to Dated Brent, wider from $12.34/b in October. The price for Russia's flagship grade has been on a downward trend in recent weeks, falling from $52.13/b on Nov. 17 to $46.94/b Nov. 21 before a further drop to $39.16/b Dec. 4.

According to CAS and MIRS data tanker operators in Greece, Europe's top ship owning nation, loaded 12.2 million barrels of Russian crude in November, a six-month low and down from 23.3 million barrels in October.

Recent Urals weakness would theoretically provide more compliant trade opportunities for Greek operators transporting oil for non-sanctioned Russian firms. In its latest monthly oil market report, the International Energy Agency noted Russia had success in preserving its oil logistics by rapidly forming new shipping companies.

MorExport, RusExport and NNK, which entered the Russian market earlier this year, shipped 1 million b/d of crude in October based on the Paris-based energy watchdog's estimates.