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Russian oil exports slide to post-war low as sanctions loom, crude discounts narrow

Highlights

H1 Sept seaborne oil flows fall to 5.5 mil b/d as Indian imports drop

EU's Russian crude imports fall below 1 million b/d for first time

Russian crude exports to Turkey hit record high

Russia's seaborne oil exports fell 6% to a new post-Ukraine war low in the first half of September as Moscow's crude flows to the EU start to ebb ahead of looming sanctions and a surge of buying by Indian refiners appears to slow, according to tanker tracking data.

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Shipped exports of Russian crude fell by 314,000 b/d compared to August levels to average 3.03 million b/d over Sept. 1-15, the first time they have dropped below pre-war levels and the lowest since September 2021, preliminary data from vessel analytics provider Kpler shows.

Oil product exports from Russia in the period remained resilient for the third consecutive month, however, dipping only slightly to 2.47 million b/d, the data shows.

Combined, total Russian oil exports -- excluding Russia's share of CPC flows from the Black Sea -- averaged 5.50 million b/d in the period, according to Kpler, also the lowest since September last year when global oil demand was recovering from the COVID-19 pandemic.

The latest data shows that the recent boom in Russian oil exports to India may have slowed, with crude flows to the key Asian importer down 40% on August levels in the two-week period to 452,000 b/d, the lowest since exports surged to an all-time record of almost 1 million b/d in July. India had become Russia's No. 2 oil buyer after China as its refiners snapped up cheap Urals crude shunned by others in the wake of Moscow's invasion of Ukraine.

But discounts for Russian crudes have narrowed lately, lessening their appeal over non-Russian crudes. Urals' discount to Dated Brent in Europe has halved to around $20/b since peaking in July.

Recent discounts for Urals crude into China have not been sufficiently steep to cover refiners' logistics, financing and insurance costs, according to market sources. Spot cargoes of Russia's ESPO crude have also been sold at a discount of only 50 cents/b to front-month ICE Brent crude futures on a DES Shandong basis, according to sources, in line with similar sour and sweet crude grades that Asian refiners buy from the Middle East and Americas.

China, the world's biggest oil importer, saw its seaborne imports of Russian crude remain stable at around 860,000 b/d in early September, according to the data. Turkish refiners have also continued to buy more Russian crude with flows hitting a record 580,000 b/d in the period, more than double pre-war levels.

EU imports

With EU sanctions on seaborne Russian crude imports set to kick in on Dec. 5, exports of Russian oil to the trade bloc have fallen to under 1 million b/d for the first time, the data shows. Russian crude flows to the Netherlands -- home to the Amsterdam-Rotterdam refining hub -- also fell to a multi-year low of 232,000 b/d in the first half of September.

The fall offset elevated imports of Russian crude to Italy, where Russian company Lukoil operates the country's biggest refinery, ISAB.

With EU sanctions on imports of Russian petroleum products also set to take effect from Feb. 5, 2023, S&P Global Commodity Insights forecasts that Russian crude and condensate production will fall by 1.2 million b/d between July and January 2023, to 1.5 million b/d below pre-conflict volumes.

With Europe's imports of seaborne Russian crude now some 1 million b/d below pre-war levels, the region most exposed to Moscow's energy has turned to the US, Iraq, Egypt and others to meet its oil needs, according to the vessel tracking data.

As Russian volumes fall, growing US imports mean the US is set to become Europe's biggest supplier of oil in the coming months.

Supported by rebounding volumes of shale oil, the US has already become one of Europe's biggest sources of additional crude and condensate since the region started to shun Russian oil over its war on Ukraine. European imports of US crude and condensate accounted for 1.4 million b/d of the region's oil supplies in early September, up by 200,000 b/d from pre-war levels.

Russia is still the biggest source of the trade bloc's shipped crude with more than 1.2 million b/d of imports landing in the region in early September, the data shows, little changed on the month. But the data shows that Norway, Egypt, Iraq, Saudi Arabia, Libya, Algeria, Brazil, Cameroon, and Angola have become key alternative crude suppliers to the EU, collectively supplying an average 1.7 million b/d of extra crude since February.