Crude in floating storage falls despite Russian oil on water reaching elevated levels

The volume of crude oil in tankers worldwide has fallen to an eight-week low, even as Russian oil on the water rises to new highs, according to data intelligence firm Kpler.

For the week beginning May 23, Kpler estimates volumes of crude in floating storage at 89 million barrels, the lowest since April 3. The Kpler estimate is based on the volume of oil on tankers idled offshore for seven days or more.

A steeply backwardated structure in crude oil markets has generally disincentivized storage, although more Russian oil is flowing long-distance into Asian markets, away from Europe due to the threat of potential Western sanctions following its invasion of Ukraine, market sources said.

Kpler estimates that almost 68 million barrels of Russian crude is currently on water, the highest for at least six years, when the company started recording this data.

Reluctance from typical markets in Europe to buy Russian oil has had a major impact on its key crude grade Urals, which is trading at record low differentials to other grades.

Platts assessed Urals at $79.065/b May 23, compared with Dated Brent at $115.525/b, S&P Global Commodity Insights data showed. On Feb. 23, the day before the Russian invasion of Ukraine, Platts assessed Urals at $90.72/b and Dated Brent at $100.48/b.

Floating crude volumes worldwide have fallen back sharply since 2020, when the oil market was facing a severe glut due to both supply and demand shocks caused by the oil price war and the COVID-19 pandemic.

Crude in floating storage peaked at over 203 million barrels in late June, Kpler data showed. Since last year, crude stored on tankers has been on a broader downward trend as oil demand has rebounded.

Changing flows

"The dislocation between physical oil demand and supply directly related to the Russia-Ukraine conflict led to an increase in long-haul voyages from the US Gulf Coast and the East of Suez to Europe, replacing missing Russian barrels," said Hafnia Tankers in its 2021 annual report published on May 23.

Russia is a significant supplier of oil to the world, typically exporting more than 7 million b/d of crude and petroleum products or some 13% of total oil trade. Europe is particularly dependent, with Russia generally supplying about 2.7 million b/d to the region.

Russian crude exports have remained resilient so far in April and May despite a fall in crude production in the country.

China's independent refiners have rekindled their taste for Russia's ESPO crude, while India's big refiners have recently bought a sizable amount of Urals.

However, analysts from S&P Global Commodity Insights expect Russian crude exports to fall in the coming weeks, with EU sanctions only permitting "strictly necessary" deals with Russian companies from May 15.

"We currently assume peak disruptions of 2.8 million b/d will be reached by August, but a slower timetable and/or lower supply impact are clearly possible if the EU is unable to agree on explicit import sanctions or European financial or potential shipping restrictions do not curtail re-routed shipments to the degree we expected," the analysts said in a recent note.

On May 19, Russian Deputy Prime Minister Alexander Novak said that, after a fall of 1 million b/d in April, Russian oil production had risen by 200,000-300,000 b/d in May and will continue to increase next month.

The latest Platts OPEC+ survey estimated that Russian crude output plunged to 9.14 million b/d in April, far below its quota of 10.44 million b/d under the OPEC+ crude production agreement, which does not include condensate.