Stricter US sanctions target Russian oil supply to China, India

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According to traders and analysts, Chinese and Indian refiners will turn to the Middle East, Africa and the United States for oil, pushing up prices and freight costs, as new U.S. sanctions on Russian producers and shipping vessels hit Moscow. Limits supply to the highest consumers.

On Friday, the U.S. Treasury Department announced sanctions against Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 vessels that transport Russian oil, which Moscow is targeting to finance its war in Ukraine. was to reduce dependent income.

Western sanctions and a price cap imposed by the Group of Seven nations in 2022 have shifted Russia’s oil trade from Europe to Asia, with many tankers used to ship oil to India and China. Some tankers have also shipped oil from Iran, which is under sanctions.

Two Chinese trade sources said the new sanctions would severely hurt Russian oil exports, forcing independent Chinese refiners to further cut refining output. The sources declined to be named because they are not authorized to speak to the media.

An expected Russian supply disruption pushed global oil prices to their highest level in months on Monday, with Brent trading above $81 a barrel.

Among the newly approved vessels, there are 143 oil tankers that handled more than 530 million barrels of Russian crude last year, about 42 percent of the country’s total seaborne crude exports, Kpler lead freight analyst Matt Wright said in a The note said.

About 300 million barrels of this were sent to China while the rest went to India, he added.

“These sanctions will significantly reduce the fleet of vessels available to ship crude oil from Russia in the short term, driving up freight rates,” Wright said.

Named tankers have shipped 900,000 bpd of Russian crude to China in the past 12 months, a Singapore-based trader said.

“It’s going to fall off a cliff,” he added.

In the first 11 months of last year, India’s Russian crude imports rose 4.5 percent year-on-year to 1.764 million bpd, or 36 percent of India’s total imports. China’s volume, including pipeline supply, increased 2% over the same period, to 99.09 million metric tons (2.159 million bpd), or 20% of its total imports.

China’s imports are mostly Russian ESPO blend crude, which is sold at a premium, while India buys mostly Urals oil.

Vortexa analyst Emma Lee said Russian ESPO Blend crude exports would be halted if the sanctions were strictly enforced, but that would depend on whether U.S. President-elect Donald Trump lifted the sanctions. Also whether China has accepted the sanctions.

Alternative

Sources said the new sanctions would push China and India back into the synchronized oil market to get more supplies from the Middle East, Africa and the US.

He added that spot prices for Middle East, African and Brazilian grades have already risen on rising demand from China and India as Russian and Iranian oil supplies are tight and expensive.

“Already, prices are rising for Middle East grades,” said an Indian oil refinery official.

“We have no choice but to go for Middle Eastern oil. We might even have to go for American oil.”

Another Indian refining source said sanctions on Russian oil insurers would force Russia to drop its crude oil price below $60 a barrel so Moscow could continue to use Western insurance and tankers.

Onyx Capital Group head of research, Harry Chilingwerian, said: “Indian refiners, a major buyer of Russian crude, will not wait to find and look for alternatives to Middle East and dated Brent-related Atlantic Basin crude. will riot for.

“Strength in the Dubai benchmark can only increase from here as we are likely to see aggressive bidding for cargoes such as Oman or Merban in February, resulting in a tighter Brent/Dubai spread,” he added. will go.”

Last month, the Biden administration designated more vessels handling Iranian crude ahead of an expected tougher crackdown by the incoming Trump administration, prompting Shandong Port Group to allow tankers to dock at its ports in the eastern Chinese province. Calling banned.

As a result, China, a major buyer of Iranian crude, will also turn to heavy Middle Eastern oil and is likely to buy more Canadian crude through the Trans Mountain Pipeline (TMX). will