Trafigura to halt all crude purchases, cut fuel offtake from Rosneft before May 15

Commodity trading house Trafigura plans to cease all crude purchases and substantially cut its fuel offtake from Russian state-owned oil group Rosneft before May 15 when tougher EU sanctions wording over imports of Russian oil and gas kick in, a spokesperson said April 27.

Commodity traders including Trafigura and Vitol have long-term supply deals in place with Rosneft signed before Russia's Feb. 24 invasion of Ukraine, and had previously said they would halt spot trades of Russian oil but continue to honor the contracts.

"We are ceasing all purchases of crude oil from Rosneft in advance of May 15," the Trafigura spokesperson said. "We are substantially reducing the volume of oil products we offtake from Rosneft by 15 May to solely supply essential fuels required by European customers."

Trafigura had most recently said it expected its Russian traded volumes will be "further reduced from May 15" and it would comply in full with all applicable sanctions.

Under the European Commission's fourth sanctions package against Russia published March 15, imports of Russian fossil fuels to the EU from state-owned companies such as Rosneft are only allowed if the transactions are "strictly necessary".

In addition, the sanctions package allows for trades with Russian-listed entities under pre-existing contracts in place prior to March 16 but only until May 15.

Although the EU has not yet provided guidance on which transactions are covered by the rules or when they could be considered 'strictly necessary', the provisions have caused many buyers of Russian oil, gas and coal to back away from their existing supply contracts.

New oil sanctions?

Self-sanctioning by European refiners and independent traders has already slashed seaborne flows of Russia's Urals crude, heavy fuel oil, VGO, and naphtha into the region.

As a result, Russian crude production shut-ins will likely reach 2.8 million b/d in the second half of 2022, S&P Global Commodity Insights estimates, despite record-high refining margins for processing heavily discounted Ural crude.

US and European officials are due to discuss April 27 further moves to cut off funding to Russia over its war in Ukraine, which could include an outright ban, a price cap, or a payment mechanism to withhold oil revenues from Russia.

The International Energy Agency estimates Russian production losses of about 1.5 million b/d in April, doubling to 3 million b/d in May if existing sanctions deter further buying or bans on Russian oil are expanded.