Russia's oil product exports slumped by 20% in February, but seaborne export volumes remain robust

Russia's oil product exports have slumped by 20% in February, marking their lowest level since May 2022, according to tanker tracking data, reported S&P on March 2 in a note. Shipborne exports of crude, however, have held up well and remain robust.

“Russia-origin seaborne oil product exports averaged 2.13mn barrels per day in February, a 21% slump from recently elevated levels of around 2.7mn bpd in January and 24% below average pre-war levels, according to S&P Global Commodities at Sea data,” the consultant said. (chart)

Analysts are watching the export volumes of Russia’s oil products closely after they became embargoed on February 5. Last year Russia successfully reorientated all its export of crude to customers in Asia – primarily Indian and China – after the EU reduced its oil imports to almost nothing in anticipation of a crude import embargo that came into effect on December 5.

Crude exports initially slumped after the start of the war as Western oil traders self-sanctioned and stopped buying Russia’s Urals blend, but the market quickly adjusted within a few months, as Russia found new customers. Instead of the week it takes to ship oil from Russia’s main oil export terminal in Primorsk to Rotterdam in the Netherlands, it takes a month for tankers to travel to Asia and back, so the market took two months to rebalance.

Pulling off the same trick with oil products will be more difficult as products like Russia’s diesel fuel are much more widely distributed, and Russia is now in competition with its own crude exports as potential customers are refining more cheap Russian crude, which reduces their need for imports.

“The largest impact has been felt in the diesel and fuel oil markets, Russia's biggest fuel exports and revenue earners. Russian diesel exports slumped by more than 100,000 bpd in February to 830,000 bpd, while fuel oil exports slid by some 170,000 bpd on the month to 614,000 bpd, the data shows,” S&P said.

There is also a logistical question mark over Russia’s ability to find enough shipping capacity to carry all its production to overseas markets. Russia has built up a large “ghost fleet” but estimates of its size vary from 100 ships to 600. While it is clear that Russia already has enough ships to export all its crude, it remains moot as to whether it has enough to transport all its products. Russia imposed a 500,000 bpd production cut that went into effect on March 1, to either compensate for falling demand or to push up prices – it is not yet clear which reason drove the decision to cut back on output.

“The shipping data shows that Europe's imports of Russian fuels slumped sharply in February. So-called "grey" market trade continues, however, albeit at reduced rates, with tankers discharging Russian fuels at common offshore ship-to-ship transfer locations off Greece, Gibraltar, Malta and Ceuta,” S&P said.

Western efforts to curb Moscow's oil revenues mean EU countries have been importing oil from other sources. This decline in exports comes as new buyers in Africa fail to absorb Russian fuels displaced from Europe.

“To help plug the gap in Europe, regional refiners and fuel retailers continue to lean on alternative diesel supplies from the Middle East, Turkey and the US, while dipping into stocks in the Amsterdam-Rotterdam-Antwerp refining hub built up ahead of the embargo,” S&P said.

The data shows that Europe's flows of Russian fuel have plunged from around 1.5mn bpd in December to less than 500,000 bpd in February. Meanwhile, African buyers in Morocco, Algeria, Nigeria, Senegal, Tunisia, Ghana and Egypt have doubled their Russian fuel imports to around 440,000 bpd.

As a result, Russia's share of European oil product imports has sunk to just 7.5% in February, down from pre-war levels of 39%, according to the data.

Elsewhere, Turkey, the UAE and China have become Russia's new biggest fuel buyers, with 35% of all Russian oil products now headed to those countries. China’s imports of Russian oil continue to rise, but those to India have stagnated for the last few months.

Seaborne exports hold up well

Despite the slump in Russian oil product exports in February, the levels seen are largely in line with product exports during mid-2022 before markets began stockpiling discounted Russian fuels ahead of the expected new Western curbs. The data includes shipments to “unknown” destinations and ship-to-ship transfers.

While Asia played the leading role as a new market for Russian crude exports in 2022, Africa is emerging as a top buyer of oil in 2023. Amongst the biggest buyers of Russian oil so far this year were Morocco, Algeria, Nigeria, Senegal, Tunisia, Ghana and Egypt, which have all doubled their Russian fuel imports to around 440,000 bpd, S&P said. Russia's share of European oil product imports – including STS transfer volumes – fell to just 7.5% in February, down from pre-war levels of 39%, according to the data.

“Elsewhere, Turkey, the UAE and China consolidated their top-ranking positions as Russia's new biggest fuel buyers, the data shows, with 35% of all Russian oil products now headed to those countries,” S&P said. “Despite the slump in Russian oil product exports in February, the levels seen are largely in line with product exports during mid-2022 before markets began stockpiling discounted Russian fuels ahead of the expected new Western curbs.”

"The sharp decline in Russian gasoil headed to Europe has been blunted somewhat by the continued increase in volumes going to Europe from the Middle East and Asia," S&P Global Commodities Insights analyst Tony Starkey said in a February 17 note. "While the Russian drop in the month was expected with the implementation of the new European sanctioning, it has largely resulted in total diesel/gasoil import volumes returning to more normal levels seen before we observed significant inflows over the past several months aimed [at bolstering] European inventories ahead of the anticipated loss of Russian supply."

Russian seaborne crude exports remained resilient in February, dipping back from an eight-month high a month earlier, the data shows, as Moscow redirected record volumes of its crude to India and a growing grey market in offshore transfers obscured other buyers.

Russian-origin crude loadings averaged 3.31mn bpd during February, down 300,000 bpd, or 8%, from January levels to hover around the highest levels since August 2022 and still above pre-war levels of 3.1mn bpd.

Despite the G7's $60 per barrel price cap on Russian crude, the value of Russia's key Urals export-grade crude has traded well below $60 since December, easing concerns from traders and shippers that the shipping controls would hamper Russian crude flows.

“Next month could see Russia's crude exports slide more sharply, however,” S&P opined. “To date, the restrictions had not had a major impact on Russian crude oil production volumes. Russian output fell 10,000 bpd on the month to 9.85mn bpd in January, according to the latest Platts survey by S&P Global Commodity Insights. That compares with 10.11mn bpd in February 2022.”

Analysts at S&P Global expect Russian crude and condensate supply will contract by 500,000 bpd between December 2022 and March 2023 due to logistical problems and run cuts triggered by EU import ban up until February 5. Output is then expected to recover by 250,000 bpd by October unless more prohibitive price caps or new Western sanctions are rolled out.