Russian crude exports pivot to Asia after EU sanctions, price cap bite

Russian seaborne crude exports held steady at around 3 million b/d during the first week of EU sanctions and the G7 price cap as Asia importers continued to soak up deliveries displaced from Europe, according to tanker tracking data.

Export loadings of Russian crude averaged 3.02 million b/d in the week ending Dec. 11, little changed from the week before and in line with the November average of 3.07 million b/d, according to data from S&P Global Commodities at Sea.

Exports headed to China, India, and South Korea remained little changed at around 2 million b/d, the data showed. while the only shipments to the EU were to Bulgaria -- which has an exemption from the EU's embargo on Russian crude -- and to Gibraltar, a common location for offshore ship-to-ship transfers. There were no Russian crude shipments to Italy, home to Lukoil's ISAB refinery, since the first week of November, the data shows.

The data came a week after the G7's $60/b price cap on Russian crude and the EU's own embargo on seaborne Russian crude came into effect early Dec. 5. The price cap and EU embargo will extend to Russian product exports from Feb. 5.

Figure likely to increase

With more than 700,000 b/d loaded from Russian ports since Dec 5 still en route to unknown destinations, the data shows that Russia sent at least 65% of its crude to Asia in the week. But that figure is likely to rise sharply as more Asian deliveries are confirmed in the coming days and weeks.

In November, Russian crude flows to the EU slumped to a record low of 464,000 b/d, while Indian refiners stepped up their buying of Russian crude to a record 1.24 million b/d. Turkey has also been importing more Russian crude.

In December so far, Russian crude exports averaged 3.05 million b/d, little changed from the 3.07 million b/d average in November.

Upstream impact

The ability of Russia to circumvent the G7 price caps on its crude and product exports was widely expected to hinge on Moscow's access to a so-called shadow fleet of old rogue tankers that can sidestep compliance over on shipping insurance and other maritime-related services under the mechanism.

Moscow has said it will not sell its crude or oil products under the G7 price cap mechanism, leading many market watchers to forecast that Russian upstream oil production will need to fall if Asian buyers are unable to absorb all of the 400,000 b/d of crude that Europe was still buying in November.

Analysts at S&P Global Commodity Insights forecast that the initial oil market dislocations from the price cap and sanctions will lower Russian crude and condensate output by 1 million b/d between November and March, to 1.5 million b/d below pre-conflict levels.

"Concurrent restrictions on G7 insurance and financing, a delayed rollout of the price cap, and Russia's aversion to selling into Western policy constraints will combine to create an initial shortage of ships and buyers required to reroute roughly half of the 2 million b/d," S&P Globa's chief geopolitical adviser Paul Sheldon said in a Dec 2 note. "Supply then rebounds by 0.3 million b/d by December 2023, as alternative shipping services become available."