Alex Lawler

LONDON (Reuters – Russia’s invasion in Ukraine has reshaped the world oil market. African countries have stepped in to supply European customers, while Moscow is being ensnared by Western sanctions and increasingly taps ship-to-ship transfer to transport its crude to Asia.

This is the most significant supply-side change in global oil trading since the U.S.’s shale revolution transformed the market shape around a decade back. It suggests Russia will be able navigate an EU (EU) oil ban provided Asia and China keep buying its crude.

According to traders and industry data, Russia has been forced to shift away from Europe due to sanctions imposed by the United States on it following the outbreak of conflict in Ukraine in February.

Russian exports fell back to levels before the invasion, according to April data from Paris’ International Energy Agency. In addition to stabilizing around $110 per barrel after hitting an all-time high in March of more than $139 per barrel in March, oil prices are now at $110.

Analysts say that demand from Asia could temper the EU’s agreement to oil bans in the next round of Russian sanctions.

“Unless the West puts diplomatic pressure on Asian buyers, we do not see the supply gap widening and oil prices spiking,” said Norbert Rücker of Julius Baer.

An intricate web of U.S. and British sanctions prohibit Russian-owned flagged vessels from calling at ports. Some of the trade to Asia has been facilitated by ship-toship transfer at sea. While this is more costly, the risk of spillages is higher.

According to Petro-Logistics, a tanker-tracker, and other data, overall, Russia’s oil has flowed via sea to Asia by at least half a million barrels since 2011.

To avoid protests and sanctions, transfers between ships, which make up a very small portion of sea commerce, were moved away from Denmark’s coast to the Mediterranean Sea.

According to Petro-Logistics president Mark Gerber, ship-to-ship transfers (STS), were quite common at the Baltic Sea entry point in Danish waters.” Reuters. These are no longer happening. Therefore, the STS trend from sanctioned to unsanctioned tankser is increasing in warmer and friendlier Mediterranean water.

Gerber estimated that the volume of Russian crude oil and other products transferred from tankers to the Mediterranean was approximately 400,000 barrels per hour (bpd). The majority of this is going to Asia. This adds to the total of 2.3 million BPD going direct.

Before the invasion in January of 2003, 1.5 million BPD were sent to Asia.

Russian oil is loaded onto Aframax and Suezmax tanksers with less than 1,000,000 barrels. It is then transferred to ships larger enough for 2 million barrels. This makes shipping cheaper, traders stated.

Russia exports more than just its seaborne volume. The total Russian products and crude exports grew to slightly more than 8 million barrels per day in April (pre-invasion).

WEST AFRICAN CRUE

European oil refiners are turning to West African crude to offset the Russian oil loss. They have seen a 17% increase in West African crude imports since April, compared with the average 2018-2021 price, according to Petro-Logistics.

Eikon data shows an increase in traffic to northwest Europe. In May there were three more cargoes with Nigerian Amenam than the one that arrived in February.

According to Gerber the volumes of crude oil from West Africa to India have almost halved since March, when 510,000 barrels per day were delivered to Delhi.

Traders say that the price of Nigerian sweet, light crude is at record levels due to strong European demand. Forcados crude, for instance, was offered at an average premium of $7-$8.

Petro-Logistics reported that the supply from North Africa to Europe has increased 30% over March. Eikon data shows that arrivals from Egypt’s Sidi Kerir port to northwest Europe will nearly double in March to more than 400,000 barrels per day in May.

Supply to Europe has been boosted by the United States. The U.S. delivered crude imports to Europe increased by more than 15% in May compared with March according to Kpler. It is Kpler’s highest monthly pace. Europe has exported about 1.45 Million bpd crude oil from the United States.