G7 crude tankers return to Russia as Urals trades close to price cap

The share of G7-linked crude tankers in Russia rebounded to a seven-month high in October, supported by recent Russian crude weakness as their operators found trade opportunities without breaching the price cap.

Data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite showed 24.8% of Russia’s 3.7 million b/d seaborne crude exports were loaded by ships flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland or Norway, or insured by Western protection and indemnity clubs.

This compared with 16.2% of 3.5 million b/d of exports in September, the lowest since December 2022 — when G7 members and their allies started to prohibit maritime services firms from participating in Russian trades unless the crude was sold for no more than $60/b in a bid to undermine Russia’s war chest against Ukraine.

Since early September, Russia’s main crude export grade Urals has been trading close to the threshold and occasionally below it, weak levels not seen since February.

Based on Platts assessment of FOB Primorsk cargoes with 10-25 days of forward loading, the monthly average price of Urals fell from $67.204/b in August to $60.826/b in September, the lowest this year, before recovering slightly to $63.055/b last month.

Platts is part of S&P Global Commodity Insights.

The softness mainly resulted from lackluster international crude prices. The average discount of Urals to Dated Brent was $12.129/b in August, $12.3/b in September and $12.189/b in October, fluctuating within a narrow range.

The development suggested spot Urals deals made below the price cap in September could have led to business opportunities for G7-linked tankers last month, and analysts have said some Western operators would still be willing to lift Russian crude when deals could be done legally.

Business opportunities

Liftings by tanker operators based in Greece, Europe’s top shipowning nation, rose from 8.7 million barrels in September to a six-month high of 9.4 million barrels in October, though the reading was still far below the 2024 high of 16.7 million barrels in April.

Separately, the CAS and MIRS also recorded some shipments on tankers operated by Turkish, UAE and Hong Kong firms covered by Western P&I clubs.

While some market participants suggested freight premiums for transporting Russian crude could be constrained by expanding shadow capacity, legal business within the cap might provide some outlets for excess mainstream tonnage amid soft market conditions.

The decision by OPEC+ countries to extend their voluntary output cuts till the end of this year was “a blow to tanker markets,” shipbroker BRS said in a recent note, adding that large LR2 tonnage used in dirty trades also hurt Aframax rates.

Platts has assessed the time charter equivalent earnings of Aframaxes on the Black Sea-Mediterranean route generally between $37,500/d and $39,000/d this month, close to their lowest this year, though still strong historically.

Non-G7 trade

Chinese operators hiked their loadings to 15.8 million barrels last month from 9.8 million barrels in September, with rising ESPO Blend flows to the 400,000 b/d Yulong Petrochemical refinery in their home country.

This came at the expense of Russian operators, whose shipments fell to 9 million barrels from 10.4 million barrels.

Most non-G7 tankers in Russian trade are shadow ships operating outside of the cap, and Western governments have made repeated calls on industry players to stop doing business with their operators.

On Oct. 21, the G7 and its allies said the tanker industry should block sanctioned parties from entering ports or buying tankers to stay compliant with the price cap regime.

With the shadow fleet mainly comprising aged, less maintained tankers, the KSE Institute has suggested G7 governments must ensure vessels passing through European waters have “adequate oil spill insurance” as part of their enforcement.

“Three loaded shadow tankers per day pass through Northern European waters, including the Danish Straits and the English Channel,” the research institution, part of Ukraine’s Kyiv School of Economics, said in a note last month.

“This means that Incidents like near-groundings and collisions have already occurred and a major incident is only a question of time with the potential for a costly environmental disaster.”
Source: Platts