India's state-owned Oil and Natural Gas Corporation failed to attract buyers in its tender to sell a May-loading Russian Sokol crude cargo amid increasing signs that financial sanctions, logistical issues and reputational risks are turning companies cautious about trading Russian oil.
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ONGC had offered 700,000 barrels of Sokol crude for loading over May 2-8 via a tender that closed on March 10. The cargo comes from ONGC's overseas unit ONGC Videsh Ltd.'s 20% stake in Russia's Sakhalin-1 project.
Several traders told S&P Global Commodity Insights March 11 that ONGC did not receive any bids for the tender. This could not be immediately verified and ONGC was not available for comment. Traders said should ONGC fail to find a buyer, or roll over loading to June, it may have little choice but to take the cargo back to its refining system in India.
Traders said Asian buyers are taking a conservative approach as the sanctions on Russia continue to evolve. Many are hoping for even deeper discounts for Russian oil and preferably avoid the limelight that comes with bidding in an open tender.
"I think [buying] interest is always there, but there are hurdles to cross like getting a letter of credit and possibly making headlines. Sensitive times now," a Singapore-based crude oil trader said.
Besides financial and reputational risks, buyers are also faced with logistics nightmares around loading oil from Russian ports.
Many shippers were unwilling to call at Russian ports amid uncertain geopolitical concerns and soaring freight rates. The ocean freight from Kozmino to North China was assessed at $9/mt on March 10, nearly double last month's $4.75/mt, Platts data by S&P Global showed.
The logistics issues are already a concern for companies that bought Russian crude cargoes prior to the start of its military conflict with Ukraine.
Last month, ONGC sold two 700,000-barrel Sokol crude cargoes for April loading at premiums of $7.50-$7.85/b to Platts front month Dubai assessments, CFR Yeosu.
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"There should be some operational problems [faced for April-loading barrels], but not essential ones," a second Singapore-based crude oil trader said.
Another trader said sellers like ONGC may have to offer open credit to buyers who are unable to secure letter of credits from banks that refrain from financing trade of Russian commodities.
Russian crude prices have plunged since last month. On March 10, S&P Global assessed the Sokol crude differential at a discount of $8.25/b to Platts Dubai, CFR Yeosu, down $3/b on the day.
With the typical trading cycle of Russian grades soon to begin, market participants are looking closely for signs of whether Chinese buyers, that binge on Russian grades like ESPO, would offer a bid.
"Although Chinese market is more optimistic as compared to the West, very few people are willing to commit and undertake risks," the first Singapore-based crude oil trader said.
This is despite benchmark Platts Dubai at its widest ever discount to Brent, that made Dubai-linked Russian grades highly lucrative for Asian buyers.
The Brent-Dubai Exchange of Futures for Swaps hit at an all-time high $17.01/b on March 3, according to Platts data by S&P Global.