Tankers: Ton/Mile Demand Expected to Increase

With Russian crude banned from EU, it’s already evident that BRICS members are bound to make up the bulk of Russia’s energy exports in the near future. In its latest weekly report, shipbroker Gibson said that “in response to Western sanctions, President Putin announced a move to pursue deeper economic and political ties within the BRICS group of economies, of which it is a member. BRICS comprises Brazil, Russia, India, China, and South Africa. All countries have not followed the path of the Western nations by sanctioning Russia. On offer is heavily discounted Russian oil and products, which is an attractive proposition at a time when oil prices are firmly above $100/bbl and inflation concerns increasingly drive policy. In return, Russia is seeking greater imports of manufactured goods to substitute western brands that have left Russia. It is worth looking at how much oil Russia currently exports to these countries and how much additional volumes could we see being shipped to BRICS, given that these countries are broadly pursuing an alternative policy to that of the West, when it comes to energy security and Russia”.

According to Gibson, “the share of Russian crude being exported to Western or Western aligned nations has been falling since 2015, whilst BRICS countries have been increasing their share. Between January 2015 and May 2022, BRICS bound flows increased from a mere 165 kbd to 2.250 mbd, from 4.5% to 44% of total Russian exports. During the same period non-BRICS exports fell from 3.55 mbd to 2.875 mbd, going from 95.5% to 56% of Russian crude exports. Prior to the invasion, growth in the Russia–BRICS crude trade was primarily driven by sustained Chinese import growth. Further significant changes have been seen after February 24th . Indian purchasing surged from March-2022 as discounted Urals led Indian buyers to significantly ramp up their imports. India has gone from importing 58 kbd at the start of 2022 to 987 kbd by May. China increased its imports from 896 kbd in January to 1.265 mbd in May. In contrast, Brazil and South Africa are not meaningful buyers of Russian crude and are unlikely to pursue imports of Russian crude to the same extent as India and China”.

Gibson added that “in terms of the CPP trade, relatively few Russian products go to BRICS nations currently, with most heading to European countries set to end Russian imports. This is likely to lead to increased CPP volumes between Russia and BRICS. Brazil has been importing approximately 23 kbd of Russian CPP in 2022, whilst South Africa has not imported any. Higher CPP flows out of Russia to Brazil and South Africa could displace Middle Eastern and Indian volumes, which would then likely be rerouted longer haul to Asia and Europe, partly offsetting lost Russian products in those regions. Likewise, higher Russian CPP volumes to Latin America could displace USG volumes, which may be rerouted to Europe”.

“As India and China increase their imports of Russian oil, this will reduce the imported volume of competing crude grades and refined products from regions such as the Middle East, WAF, USG and South America. In turn, this will offer more potential supplies for Europe and other countries looking to replace Russian imports. This will boost tonne mile demand which will in turn support freight rates. Comments by Janet Yellen on a proposed plan to allow Russian exports to the West at a capped price may provide a ceiling to Russian flows shifting from West to East but the political intent of the Russian leadership may prioritise Indian and Chinese exports over that of Europe and other countries. The trade data shows that the structural shift is underway in the tanker market towards less efficient, longer haul trade. Therefore, both tanker shipping and the world in general may have to come to terms with this new political and economic reality that Russia’s energy trade will continue despite western sanctions”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide