BAKU, Azerbaijan, May 6. Those buyers that do want to increase their purchases of Russian oil face a number of logistical hurdles, Trend reports with reference to Fitch Solutions.
“The bulk of Russia’s oil is produced in the west and is exported via the 1.4mn b/d Druzhba pipeline to Europe, or by tanker. Crude oil and product pipeline supplies will be the most difficult to reorient, but even rerouting tanker flows comes at a cost. For one thing, the shipping distance from Russia’s western oil ports to Asia is far greater than to Europe. For example, a cargo from Russia’s Primorsk terminal takes less than a week to reach the major Rotterdam hub, but more than three weeks to reach India and around double again that to reach China. Buyers will incur substantially higher shipping costs due to the longer distances travelled, as well as the additional strains placed on tanker availability,” reads the report released by Fitch Solutions.
The company notes that the market has already been grappling with frictions arising from the Western sanctions already in place, as well as a reluctance among major players in the shipping, banking and insurance sectors to facilitate trade with Russia. The cost and complexity of such trade will only increase as the EU import ban is brought into place.
“The overall impact on Russian oil production and exports will
hinge on the nature of any sanctions waivers awarded to European
buyers, as well as the overall level of compliance. There are
well-established mechanisms for sanctions evasion in the oil
sector, such as switching off ship transponders, engaging in
ship-to-ship transfers and blending with other grades to mask the
oil’s country of origin. However, the number of companies willing
to be a
counterparty to this type of transaction is limited and, in the EU,
largely non-existent. As a result, Russian upstream oil output
looks set for substantial declines this year, as sanctions are
ramped up, forcing shut ins, and will likely fall even more sharply
than our current forecast of -9.2%. This implies rising price
pressures for both European and global consumers, as the market
struggles to adapt to the new trade dislocations and funnel
adequate supplies into Europe,” the report says.
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