Russia's biggest shipper Sovcomflot sees business dwindle as buyers snub Russia oil

Russia's largest shipping company Sovcomflot is facing strong headwinds as several customers are starting to avoid its vessels on the spot market, following Russia's invasion of Ukraine, industry sources said March 2.

A ban on Russian-owned ships by the UK and Canada, along with specific US sanctions targeting foreign investment flowing into Sovcomflot are also hindering its business, they added.

The shipper operates a fleet of 133 vessels, the majority of which are crude oil tankers, along with some LNG and gas carriers. A significant amount of these tankers are employed in the spot market, and are fixed regularly by oil companies and several trading houses.

But with increased financial measures against Russian banks, many are reassessing their business with Russian oil companies. This meant many of its ships were put on hold by charterers, according to sources.

Russia is also heavily dependent on Sovcomflot's ships to exports its oil, which consists of more than 7 million b/d of crude and petroleum products, making up 13% of total oil trade.

Sanctions

"US sanctions against Sovcomflot are limited, the company continues to fulfill its obligations to customers and partners and ensure the safe transportation of goods," a spokesperson told S&P Global Commodity Insights, when asked about the impact of current events on its business.

On Feb. 24, the US Treasury Department imposed sanctions focusing on debt and equity prohibitions and stopping the flow of foreign investment against 13 major Russia-owned entities including Sovcomflot so as to remove them from the US financial system and stop foreign investment flowing.

"This will prohibit transactions and dealings by US persons or within the United States in new debt of longer than 14 days maturity and new equity of Russian state-owned enterprises, entities that operate in the financial services sector of the Russian Federation economy, and other entities determined to be subject to the prohibitions in this directive," US Treasury said in a statement.

Sources said the industry was trying to avoid Sovcomflot tankers on the spot-fixing market.

But for now, a large chunk of its vessels are used by Russian oil companies such as Gazprom Neft, Lukoil, and Rosneft. These companies are trying to fix these tankers on a CIF or delivered basis rather than on a normal FOB basis, as many global refiners are trying to ignore buying Russian oil.

So far this week, the only spot fixture seen on a Sovcomflot vessel, was an unnamed ship placed on subjects by Lukoil's trading arm Litasco at Worldscale 400 on a Baltic -UK Continent voyage.

Almost 50% of Sovcomflot's tankers are currently in Northwest Europe and the Mediterranean, with others scattered all over the world from the US to Asia-Pacific according to data from trade tracking too cFlow.

Increased financial measures against Russian banks have already forced many refiners and trading houses to reassess their business with Russian oil companies, with some already opting for alternative oil supplies.

Shipping ban

Russian-owned oil tankers have already been banned from docking in the UK from March 1 as part of a widespread moratorium on the country's shipping in response to the invasion of Ukraine.

A handful of tankers operated by Sovcomflot have been in UK territorial waters recently. The NS Century discharged 700,000 barrels of Nigerian crude at the Finnart Oil Terminal in Scotland on Feb. 27, according to tanker tracking tool cFlow. The tanker is now leaving Scotland.

Meanwhile, the NS Champion, which was supposed to load UK crude Flotta Gold from the Flotta Terminal in Orkney Islands on Mar. 1, had to divert its course away from the UK due to the current shipping ban.

A number of European countries like Spain, Lithuania, Finland are also looking to follow the UK's lead in blocking access of Russian-owned tankers and shipping to their ports but have deferred a decision on the move to the European Union. (See story 1541 GMT)