Russian oil exports will decline despite growing “dark fleet,” says Vitol boss

Russia’s oil exports are expected to fall by as much as 1 million barrels a day this winter even as the country expands its “dark fleet” of tankers, according to the world’s largest independent energy trader.

Russell Hardy, chief executive of London-based Vitol, said that while Russia has made progress in protecting itself from the impact of tougher sanctions affecting its ocean-going crude, which come into effect from December, exports are likely to remain so 500,000 barrels per day will decrease 1mn b/d this winter.

“It is expected that almost all European companies will turn their backs on companies that are not compliant,” Hardy told the Financial Times. “We believe [Russia’s] Logistics solutions grow, they eat up the problem. But whether they’ve eaten up the whole issue or not, we don’t know.”

Western countries are torn between trying to curb Moscow’s revenues after its invasion of Ukraine and concerns that the loss of Russian oil could push up prices when countries are already grappling with energy-driven inflation.

The US is leading the G7 group’s plans to impose a price cap on Russian oil exports before an EU insurance ban for tankers carrying Russian oil comes into effect on December 5. This would allow companies shipping Russian oil to retain access to Western markets and institutions when the oil sells below market prices.

However, Russian President Vladimir Putin has said Moscow will not sell oil under the price cap plan.

Hardy said Russian oil companies “would be under pressure to find a solution,” and he expected an increasing number of ship-to-ship transfers and other methods used to obfuscate Russian oil. The largest supertankers don’t have access to Moscow’s Baltic ports, but Hardy said he expects Russia to use its fleet of smaller vessels to carry oil-to-service Very Large Crude Carriers (VLCCs) near EU waters, a potential environmental risk.

Russian oil exports have largely held up since the invasion, although many European buyers have turned their backs on Moscow, while India and China are increasing imports.

Both India and China have state-backed fleets of VLCCs, although it remains unclear whether they will let Russia use them without access to Western insurance and reinsurance markets.

Vitol was once one of the biggest shippers of Russian oil but says it has stopped trading cargo from companies like state-backed Rosneft. Vitol has traded 7.6 million b/d of oil globally in 2021, giving it good visibility into the often opaque physical markets.

Bjarne Schieldrop, an analyst at Norway’s SEB, said he expects oil prices to average $115 a barrel in the first quarter of next year – up from $95 today – due to disruptions in Russian supplies, which are about 5.5mn b/d by sea comprise 2.5 million b/d by pipeline in a global market of 100 million b/d.

Schieldrop said the existing “dark fleet” is estimated at about 270 tankers, many of which carry Iranian and Venezuelan oil, which is subject to sanctions, according to shipbroker BRS. Traders suspect that Russian companies have tried to secure older tankers that are to be scrapped.

“There will be a lot of friction. Lots of activity under the radar,” Schilddrop said. “And there will be disruptions in Russian crude oil flow to the market.”

Hardy said oil prices could remain under pressure this winter, however, despite the expected tightening of Russian supplies and efforts by the Opec+ group of big producers to scale back production to prop up the price.

He said Vitol’s fourth-quarter oil demand estimates are about 2 million b/d lower than earlier this year, reflecting weak demand in the aviation sector, the US gasoline market and China.

“Our long-term view supports oil prices for the next five years,” Hardy said. “However, today we are struggling with weak demand and economic collapse.”

Video: How Putin held Europe hostage over energy | FT power source Russian oil exports will decline despite growing “dark fleet,” says Vitol boss

Adam Bradshaw

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