Analysis: How the conflict in Ukraine is reshaping global oil markets

A model of a petrol pump in front of Ukraine and the colors of the Russian flag in this illustration taken on March 25, 2022. REUTERS / Dado Ruvic / Illustration / File Photo

LONDON (Reuters) – Russia’s invasion of Ukraine has reshaped the global oil market, with African suppliers stepping in to meet European demand and Moscow, hit by Western sanctions, increasingly resorting to risky ship-to-ship transfers to deliver its crude. Asia.

The redirects represent the biggest supply-side change in global oil trade since the US shale revolution transformed the market about a decade ago, and suggest that Russia will be able to get through an oil embargo by the European Union, provided that Asia and China . Continue to buy crude oil.

Sanctions imposed on Moscow after the conflict in Ukraine began in February, including a US embargo on its oil imports, have pushed Russia away from Europe, where its crude oil production is banned, to customers in India and China who pick up shipments from abroad. Big discount, according to industry and dealer data. Read more

Russian exports returned to pre-invasion levels in April, according to data from the Paris-based International Energy Agency, and oil prices settled around $110 after hitting a 14-year high above $139 a barrel in March.

Even if the European Union agrees to ban oil in its next round of Russian sanctions, analysts said the impact could be mitigated by demand from Asia.

“Unless the West puts diplomatic pressure on Asian buyers, we don’t see the supply gap widening and oil prices rising,” said Norbert Rucker of Julius Baer.

A complex set of US, EU and British sanctions have banned Russian-owned or Russian-flagged ships from connecting to ports, meaning some of the increased trade to Asia is facilitated by ship-to-ship transfers at sea – an expensive process where the risk of spillage is greater.

Overall, the flow of Russian oil to Asia by sea has jumped at least 50% since the start of the year, according to Petro-Logistics tanker tracking and other data.

Ship-to-ship transfers, which represent a small portion of total maritime trade, have shifted away from the Danish coast to the Mediterranean to avoid sanctions and protests.

“Ship-to-ship transfers were common in Danish waters at the Baltic Sea entry point,” Mark Gerber, president of Petro Logistics, told Reuters. “That doesn’t happen anymore; hence the STS trend of the sanctioned tanker to the non-sanctioned tanker growing in the warmer, friendlier waters of the Mediterranean.”

Gerber estimated the volumes of Russian crude and products transported between tankers in the Mediterranean at about 400,000 barrels per day, most of which go to Asia, adding to the 2.3 million barrels per day that go directly.

In January, before the invasion, about 1.5 million barrels per day were sent directly to Asia.

Traders said the Russian oil is loaded onto Aframax or Suezmax tankers carrying less than 1 million barrels and transferred at sea to larger vessels that can hold 2 million barrels, making shipping more cost-effective.

The volumes transported by sea are only a part of the total exports from Russia. Including pipeline supplies, total Russian crude and product exports rose to just over 8 million barrels per day in April, to return to a pre-invasion rate.

West African crude

To make up for the loss of Russian oil, European refineries have turned to West African crude imports, which rose 17% in April compared to the 2018-2021 average according to Petro Logistics.

Eikon data also shows an increase and indicates that 660,000 bpd mostly from Nigeria, Angola and Cameroon arrived in northwest Europe in May, with three shipments from Nigeria’s Amineam arriving compared to one in February.

Meanwhile, West African crude volumes to India have almost halved, according to Gerber, with 280,000 bpd delivered in April from 510,000 bpd in March as Delhi switches to Russian supplies.

As European demand heated up, prices for Nigerian light and sweet crude in particular have reached record levels, according to traders, with Forcados crude for example offered at a premium of at least $7 to Brent crude.

Petro Logistics said supplies from North Africa to Europe are up 30% since March. From this, Eikon data indicates that arrivals in northwest Europe from the Egyptian port of Sidi Kerir, which analysts say is likely to be Saudi crude, will nearly double against March to more than 400,000 barrels per day in May.

The United States also boosted supplies to Europe. European crude imports in May from the United States on a delivery basis rose more than 15% compared to March, according to tracker Kpler, the highest monthly pace on record. And Europe dumped 1.45 million barrels per day of crude from the United States.

Additional reporting by Jonathan Saul; Editing by Carmel Kremens

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