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Breaking the price cap

A summary of a recent post by the Tankers Research and Consultancy department Poten and Partners

Are owners leaving the Russian crude export trade?

  1. G7 Crude Oil Price Cap: In December 2022, the G7 introduced a crude oil price cap of $60/barrel on Russian oil exports as a punishment for their invasion of Ukraine. The cap limited the involvement of marine service providers from G7 and EU countries in the Russian crude oil trade.

  2. Western Owners Avoiding Russian Far East Trade: Since the price cap was set, oil prices in the Russian Far East have consistently exceeded $60/barrel. This led western owners to mostly avoid this trade, as they were restricted by the price cap.

  3. Continued Trade in Western Ports: The price of Urals, the benchmark Russian crude mostly shipped from the Baltic and the Black Sea, remained mostly below the price cap, allowing some Western shipping companies (especially private Greek Aframax and Suezmax owners) to continue moving Russian barrels.

4. Changing Trade Flows: Russian trade flows shifted as Western countries and companies stopped buying Russian crude. Russia increased exports to India, China, and Turkey, boosting demand for Aframaxes and Suezmaxes due to the limitations on Russian ports for VLCCs.

5. Concentration of Shipowners: The Russian crude export trade from Western ports involved over 100 shipowners, but the business was highly concentrated. The top 10 owners accounted for over 50% of all voyages, while the rest did only a few each.

6. Reduction in Exports: Over the last month, Russia's exports from Western ports dropped by 630,000 b/d due to production cuts announced by the Russian government and coinciding with unilateral production reductions from Saudi Arabia. This has resulted in higher oil prices above the price cap, making Russian oil less competitive in China and India.

7. Impact on Shipowners: The reduction in exports may lead to lower employment opportunities for shipowners. Some Greek-owned vessels previously involved in the Russian trade are now seeking alternative employment, but it's unclear if this is due to fewer Russian cargoes available or concerns about breaching sanctions.

8. Limited Options for "Dark Fleet": The "dark fleet" engaged in Russian trades has limited options, with Russia, Iran, and Venezuela being the main destinations due to sanctions and restrictions. Western owners, on the other hand, can explore alternative markets.

The full article is available on request Posted on August 3, 2023.


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