Tanker Market in Changing Tides

The tanker market is expected to face a series of shifts and changes in trade flows over the course of the next few months. At the same time though, the economic impact of the war in Ukraine is expected to take effect and impact demand for crude as well. In its latest weekly report, shipbroker Gibson said that “the European Union’s (EU) decision to prohibit Russian crude and refined products imports into the bloc came as little surprise to the market. Even though the ban will prevent seaborne oil flows to Europe from Russia, some Russian oil will continue flow via pipeline into several landlocked member states. Nevertheless, the impact on the tanker market will be extreme compared to the reallocation of trade seen to date which has been largely voluntary. Whilst only gradual change might be observed over the next few months, as the wind down period expires, the effect will be profound”.

“To recap, the EU’s sixth sanction package states that seaborne crude oil imports must cease by 5 th December with refined product imports being wound down 2 months later. Landlocked countries will be allowed to continue importing pipeline crude until a wholescale switch to non-Russian barrels is feasible. Tanker imports from Russia will only be allowed if disruption to pipeline supplies make it necessary. Coinciding with the sixth round of sanctions, the EU in collaboration with the UK, will ban the provision of insurance services to Russian for shipments to the Union and third countries. Whilst this insurance ban will not entirely prevent Russian exports, it will force shipowners and charterers to find new insurance channels and reduce the pool of tonnage willing to carry Russian oil, and likely impact Russian export volumes”, Gibson noted.

According to the shipbroker, “the result of these sanctions is that some 2.5 to 3mbd of crude oil and 1.5mbd of refined products will have to find a new home, or simply not be produced. The reality will be a combination of both. Production and refinery run rates are likely to fall, the extent of which will depend on export demand for Russian barrels. Undoubtedly some barrels will be diverted from Europe to India and China, as has been observed already, although it is unclear to what extent these countries might be willing to raise imports”.

“For Europe, the loss of Russian barrels creates a significant feedstock deficit which will need to be backfilled from elsewhere. European refiners will likely increase purchases from the Middle East, West Africa and United States, as well as local North Sea barrels, raising prices for these grades and further incentivising Eastern buyers to increase Russian intake. Similarly, the loss of Russian products, most notably diesel will create further inefficiencies in trade. At this stage it is unclear how much Russian diesel might be diverted to markets such as Latin America and Africa, however what is clear is that Europe will have a significant deficit, not all of which can be served by increases in regional refining activity, pointing to steep increases in imports”, Gibson noted.

The shipbroker concluded that “put simply, the net effects of the European oil embargo are longer voyages and increased trading inefficiencies. However, the elephant in the room is outright levels of demand. The economic damage of the invasion is becoming increasingly evident and is likely to deteriorate further before it improves, with the risk of recession ever present. Oil prices are likely to rise further unless oil supply from alternative sources increases significantly, further squeezing demand. However, global consumption is still projected to grow in 2022 and beyond despite economic risks, meaning that if growth can be sustained, longer voyages will give tonne mile demand an extra welcome boost”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide