Fresh EU sanctions to further fragment clean tanker markets: analysts

Product tanker markets will become more fragmented as operators look to steer on the right side of the EU's latest sanctions against Russian oil, with emerging trading routes potentially aiding floating storage and MR demand, according to industry experts.

The EU, in its 18th sanctions package, lowered the price cap on Russian crude oil from $60/b to $47.60/b, effective Sept. 3. There is also a ban on refined oil products processed from Russian crude oil in third countries from Jan. 21, 2026. This directly targets major importers of Russian crude, such as India and Turkey, who then refine and export these products to Europe.

Fotios Katsoulas, a shipping analyst at S&P Global Energy, suggested the new restrictions could redraw the trading patterns for refined products even as China and India are expected to remain the top Russian crude importers.

India accounted for 1.4 million b/d or 31% of Russian crude seaborne exports in June and China 900,000 b/d or 20%, according to data from S&P Global Commodities at Sea.

"The core impact remains the re-routing of Russian crude oil exports away from Europe and towards Asian buyers, primarily China and India," Katsoulas said.

From Asia

The ban on refined products from Russian crude processed in third countries is a direct attempt to close the refining loophole, adding more complexity to the global oil market. While Chinese refiners have limited exposure to the EU market, their peers in India and Turkey have been enthusiastic buyers of Russian crude and major suppliers of products to the bloc.

According to Energy estimates, the ban will potentially impact 250,000 b/d of diesel shipments to the EU from Turkey and India.

"Traditional trade routes are reconfigured, and new price discovery mechanisms are emerging outside traditional benchmarks, creating wider price spreads," Katsoulas said.

Substantial imports come from Indian refiner Reliance's Jamnagar plant, and if it can successfully process non-Russian crude for exports of refined products to Europe, the impact on trade flows will be minimal, said a chartering executive with a global commodities trading company.

Platts, part of Energy, assessed the rate to carry a cargo of refined products from West Coast India to UK/Continent on a Long Range 1 tanker via the Cape of Good Hope at $3 million July 29, up 7% on the week.

Shipments from Russian-backed Indian refiner Nayara, now sanctioned by the EU, typically load in Vadinar and are now likely to be substituted with cargoes from the Persian Gulf, the executive said. A shipping broker in Seoul said that US Gulf will become a bigger source for gasoil in Europe.

Nayara will have to find non-European buyers in other countries, such as Singapore and Africa, said a tanker broker in Singapore.

However, the real challenge will be to find ships to deliver these cargoes because companies that are listed on stock exchanges in the US and Europe, or have exposure to delivering cargoes in the West, will stay away, the tanker broker said. Trading companies are also declining to buy these cargoes due to these restrictions, he added.

Nayara is partly owned by Russia's state-controlled Rosneft, but it contended in a July 20 statement that it is not a controlling shareholder because its stake is less than 50%.

From next year, it will become increasingly difficult for companies importing Russian crude to export distillates to EU countries, even by processing non-Russian crude, because of the risk of being sanctioned for their Russian trade portfolio. Sanctions are a work in progress and rules can be tweaked anytime, as has happened this month, said a VLCC broker.

Swap arrangements

Focusing on diesel, traders may engage in swap deals, where Indian supplies are traded for Middle East cargoes destined for Europe. This allows Europe to receive fuels from non-sanctioned sources while Indian products find new homes, analysts said.

A notable trend is likely to be the increased use of floating storage facilities in the Middle East and West Africa. This allows Indian refiners to offload products that cannot immediately find a buyer, holding them at sea until new markets or re-export opportunities arise. West Africa, particularly off Togo and Nigeria, has already emerged as a significant hub for clean product floating storage, Katsoulas said.

He added that the traditional East-to-West flow of refined products -- namely, from India to Europe -- will diminish, to be replaced by a more complex web of intra-Asian trade lanes from India. This will necessitate flexible routing and potentially greater use of smaller tankers, like MRs, instead of LR product tankers.