After the United States implemented new sanctions against Russia in the energy sector, traders and analysts are saying that Chinese and Indian refineries will purchase more oil from the Middle East, Africa, and the Americas, leading to higher prices and transportation costs.
The U.S. Treasury Department announced comprehensive new sanctions on the Russian energy sector on January 10th, targeting Russian oil giants Gazprom Neft and Surgutneftegaz, as well as 183 vessels transporting Russian oil and dozens of oil traders, oilfield service providers, insurance companies, and energy officials. This move aims to disrupt Moscow’s main source of income used to finance its war in Ukraine.
These sanctions are considered the most severe measures taken by the U.S. against the Russian energy sector to date.
The sanctions announced last Friday also included two Chinese oil logistics companies – Shandong United Energy Pipeline Transport Co., Ltd. and Guangrao United Energy Pipeline Transport Co., Ltd. These companies are both located in Shandong Province, a major refining hub and the primary location for China’s procurement of sanctioned oil.
Due to the Group of Seven’s imposition of price caps and sanctions on Russian oil in 2022, Russia’s oil trade shifted from Europe to Asia.
According to data from international data intelligence company Kpler, “The latest sanctions target oil tankers that make up around 42% of Russia’s seaborne oil exports, mainly destined for China.”
Reuters cited traders as saying that the new sanctions are forcing Chinese and Indian refineries to turn to unsanctioned oil suppliers, resulting in higher premiums for Middle Eastern, African, and Brazilian crude oil in the spot market.
Traders revealed that over the past weekend, China’s Yulong Petrochemical purchased 4 million barrels of Upper Zakum crude oil from TotalEnergies’ trading arm Totsa. The batch of crude oil is set to be loaded in February and March.
It was reported that Bharat Petroleum Corp Ltd (BPCL) of India recently purchased 2 million barrels of Omani crude oil from Totsa, which is scheduled for loading in February.
Traders said that on Monday, global Brent crude futures prices rose to over $81 per barrel, marking a new high since August of last year. Middle Eastern crude benchmarks (Omani, Dubai, and Murban) saw spot premiums surge by over 70% to around $3 per barrel, reaching the highest level since October 2023. Spot premiums for Brazilian oil for March delivery exceeded $3 per barrel, higher than the around $2 per barrel level seen in early December.