Oil embargo has increased demand for tankers
2022.12.05 10:11
Oil embargo has increased demand for tankers
Budrigannews.com – Western efforts to restrict trade in Russian crude are to blame for the boom in the market for old oil tankers.
New businesses have jumped into the void and are purchasing old tankers that would normally be disposed of, as Western shipping and maritime services companies avoid Russian oil to avoid sanctions and damage to their reputations.
Beginning on December 5, the European Union imposed a ban on all seaborne Russian crude imports, with a February ban on fuel imports.
Additionally, if the crude was purchased at a price above a price cap of $60 a barrel that went into effect on Monday, it prohibited individuals and businesses within the bloc from providing services such as financing, brokerage, shipping, and insurance to ship Russian oil elsewhere.
Taking advantage of sky-high charter prices for vessels willing to ship Russian oil to India and China, aging tankers have recently been sold by Greek and Norwegian owners for record prices to new Middle Eastern and Asian buyers.
The benefits are being reaped by tanker management businesses like Fractal Shipping, which is based in Geneva, a financial center in Switzerland.
Fractal assembled a fleet of 23 fuel and oil tankers recently purchased by Dubai owners in less than a year. Refinitiv Eikon ship tracking revealed that the majority are transporting Russian crude to Asia from Baltic and Black Sea ports.
According to Chief Executive Mathieu Philippe, he first came up with the concept for Fractal a year ago, betting that the global tanker fleet was getting stretched, and that the cost of vessels and freight rates would inevitably rise from their lows before the pandemic.
However, by the middle of this year, new ship owners, or principals, began contacting him to inquire about entering the Russian oil industry.
“In August and September, a lot of tankers were given to us.The veteran of the shipping industry disclosed this to Reuters: “Our principals wanted to enter the business for the Russian opportunity.”
PRICE SURGE The major Western oil companies typically cease using tankers when they are approximately 15 years old, and many of them would be discarded.According to Fractal’s website, the company’s fleet is entirely comprised of older vessels ranging in age from 13 to 19 years.
Second-hand oil tanker prices have increased, particularly for Aframax vessels, which are the standard size for loading crude at Russia’s Baltic ports and can carry up to 600,000 barrels. New entrants are eager to get a piece of the Russian market.
According to valuation company VesselsValue, the price of 20-year-old Aframaxes has increased by 86%, from $11.8 million on January 1 to $22 million now.
VesselsValue reported that 148 Aframax sales have been reported thus far this year—a 5% increase from the same time period in 2021.
According to research conducted by shipbroker Clarksons, 76 tankers were sold in October, a new monthly record, in the first 11 months of 2022, more than in any previous full year.
Fractal and other management companies had not broken any rules because, up until Dec. 5, there were no Western sanctions against shipping Russian oil to Asian markets.
However, Philippe stated that Fractal does not deal with any Russian-owned businesses in order to avoid potential pitfalls.He added that Western banks financing maritime trade would also reject that.
The Group of Seven (G7) rich nations have mitigated the impact of the new EU sanctions by permitting exports below a cap of $60 per barrel in order to prevent them from halting millions of barrels per day of Russian crude exports and driving up global fuel costs.
The plan aims to reduce Russia’s export earnings while maintaining oil supplies.
As long as the deals are below the cap, businesses like Fractal’s can continue shipping Russian crude without any problems thanks to the agreement on the price cap.
While China and India, Russia’s two largest buyers, have not pledged to adhere to the limit, the Kremlin has repeatedly stated that it will not sell oil below the new price limit.
SAILING TO RUSSIA New shipowners are making money by transporting Russian oil.One ship broker, who did not wish to be identified because he was not authorized to speak with the media, stated, “If they carry Russian oil, ships earning $80,000 a day in the Mediterranean can make $130,000 a day.”
Except for a brief period in 2020 when oil companies scrambled for tankers to store fuel as demand crashed due to the pandemic, crude tanker rates have jumped to levels not seen since 2008.
Omar Nokta, an analyst at investment bank Jefferies, stated that tanker owners can earn more than $100,000 per day for certain journeys.
“What is clear is that the tanker fleet is becoming stretched and traveling longer distances,” he stated. “While it remains to be seen how the price cap on Russian exports will ultimately play out,” he added.
In contrast to the past, when Russian oil was primarily sold in Europe and the voyages only took a few days, more tankers are now being used for trips that take weeks to complete. These trips take Russian oil from the Baltic and Black Sea to Asia.
Analysis from shipping brokers indicates that new oil tanker deliveries are anticipated to be at an all-time low next year and that shipbuilding also stalled during the pandemic.
Using Refinitiv Eikon ship tracking data, Reuters monitored 18 of the tankers belonging to Fractal.
According to the data, twelve vessels have loaded oil at Russian ports in the past two months, either for the first time, for the first time since the beginning of the Ukraine war, or at least for the first time in more than a year.Two have been calling Russian ports frequently.
For instance, in the middle of September, the Fractal-managed Charvi tanker loaded up on crude at Russia’s Baltic port of Primorsk before sailing to discharge its cargo in Sikka, India.
According to data from Refinitiv Eikon dating back to 2010, the tanker that used to be owned by
Norway’s Viken Shipping and went by the name Storviken had never stopped at a Russian port before.
In a similar vein, the tanker Daphne V, which used to be owned by Viken Shipping but is now managed by Fractal, stopped at Primorsk on November 11 for the first time since the beginning of the war in Ukraine. It is traveling to Asia via the Suez Canal.
Before it was sold, the tanker went by the name Kronviken.Viken Delivery said it had not offered boats to Russian proprietors but rather declined to recognize the purchasers.
According to estimates provided by shipbroker Braemar, approximately 120 of the 212 tankers that were sold to likely Russian buyers this year were looking at Russian trades. In contrast, there were virtually no sales made to buyers who were involved in shipping Russian crude last year.
CIRCUMVENTING SANCTIONS The U.S. Treasury has provided some guidance regarding the operation of the cap, but its enforcement remains a mystery.
“The price cap is very confusing,” Philippe of Fractal stated.We are certainly one of the organizations that need to stay in the Russian exchange.We have to be opportunistic as businessmen.”
Purchasers should give reports, for example, solicitations to transportation organizations or guarantors to show they adhered to the cap however it will be basically down to self-observing, without any punishments for suppliers of delivery administrations on the off chance that they worked sincerely.
Deals that are shown to be outside the price cap would break the sanctions, and analysts say that other vessels that have helped Venezuela and Iran get around oil export restrictions may have been involved in that trade.
By allowing Russian oil exports to occur openly without violating sanctions, the G7 price cap plan aims to prevent the expansion of this so-called “dark fleet.”
Trafigura and other shipping industry sources say that this dark fleet, which makes up about 10% of all oil tankers in the world, has helped Iran and Venezuela get around an embargo imposed by the United States since 2019.
According to Claire Jungman, chief of staff at the United States advocacy group United Against Nuclear Iran (UANI), which monitors Iran-related tanker traffic through ship and satellite tracking, at least 21 tankers have switched to shipping Russian oil instead of Iranian shipments.
Of those vessels, basically have four changed possession as of late.
Additionally, according to ship broker Braemar, some of the vessels involved in shipping oil from Iran and Venezuela were switching to shipping Russian oil.
It estimated that there were 107 Aframaxes, 65 larger Suezmaxes, and 82 VLCCs (Very Large Crude Carriers) in the so-called shadow fleet that was transporting oil from those two nations and some of it also for Russia.
Christian M. Ingerslev, the chief executive officer of Maersk Tankers in Denmark, stated, “You now have two separate optimised fleets.”
He stated, “It becomes very difficult for the sanctions compliant companies to take the risk because they don’t know what will happen tomorrow if sanctions are continually adjusted.”
