Aframax rates jump on risk-premium fears as EU eyes shipping ban on Russia

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The cost of chartering Aframax tankers to transport crude or oil products hovered at multiyear highs March 7 as the EU and Norway continued to eye a ban on Russian shipping and ‘self-sanctioning’ efforts to sideline Russian exports continue to curb demand for its seaborne oil.

Russia typically exports about 4.6 million b/d of crude with 2.7 million b/d heading to Europe, 1.5 million b/d to Asia, and 210,000 b/d to the US, according to analysts at S&P Global Commodity Insights.

Aframaxes currently account for about 70% of Russian seaborne exports of crude going west, the analysts said. Since January 2017, a monthly average of 154 Aframaxes — 23% of the global fleet — lift oil from Russian ports in the Black Sea and Baltic Sea, according to data from Platts cFlow, trade-flow analytics software from S&P Global.

But that picture is changing as market players grow ever jumpier about breaching present or future sanctions. This means that those market players who are prepared to go to Russian ports can charge a premium.

S&P Global assessed Dirty Black Sea-UK Continent 100,000 mt at Worldscale 550 March 3, dipping slightly to w500 March 4, but up dramatically from w100 Feb. 23, the day before Russia’s invasion of Ukraine.

S&P Global assessed Dirty Black Sea-Med 80,000 mt at w480 March 3, before dipping slightly to w450 March 4. This was up w115 Feb. 23.

Both March 3 assessments were record highs.

“The risk of engaging in the trade of Russian crude is still high,” a shipowner said. “The premium for calling Russian ports in the Baltic and [the] Black Sea is here to stay for the foreseeable future.”

Escalating sanctions risk

Policymakers in the US, Europe, and other jurisdictions continue to discuss new sanctions and so the risk of becoming non-compliant in the near future grows ever greater, market sources said.

US Secretary of State Antony Blinken said the US and its allies were looking in a “coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets.”

An EU spokesperson said March 7 that no ban on Russian oil imports has yet been decided.

A number of European Union nations, including Estonia, Poland, Finland, and perhaps most significantly the Netherlands, home to the European bunker hub of Rotterdam, have said that sanctions against Russia will be taken on an EU level.

A spokesperson for the Norwegian government said Oslo is aware that the EU is considering limiting the docking of Russian ships in EU ports, and Norway is” also in the process of considering these questions.”

However, uncertainty and fear of potential sanctions are enough to spook companies and their compliance departments.

There are now thousands of pages of regulations that have been issued since sanctions began and it takes times to digest all that, amid a very swift pace of change, and this is not going to change, DJ Wolff, a lawyer at Crowell & Moring LLP, said during a webinar industry body BIMCO organized March 1.

One risk is that shippers may not know whether or not they are dealing with a sanctioned company. Many of the existing sanctions from the EU and the US name designated individuals and, while a Russia-related counterparty may not be ostensibly owned by a designated person, there is often a considerable “flow down” through the networks of these designated persons, and this means market players need to check their counterparty is not ultimately owned by a designated person, Wolff said.

“Even if you’re willing to do it, you have to make sure all your other counterparties are willing to do it … otherwise you won’t get paid,” Wolff said.

Existing sanctions

The list of formal sanctions is already considerable. The UK has banned Russian-owned vessels from docking at its ports. The move, which Canada also announced, blocks Russian-operated, controlled, chartered, registered, and flagged oil tankers and other vessels. Gibraltar, the British Overseas Territory and key bunkering port at the mouth of the Mediterranean Sea confirmed it will block Russian vessels from docking.

Although Western sanctions on Russia have so far sought to avoid hitting oil and gas flows, Russian oil exports have been hit by what is sometimes referred to as “shadow sanctions” — refiners shunning Russian crude, difficulties securing shipping insurance and letters of credit, and crews being unwilling to head into high-risk locations.

The UK ban does not cover cargoes of Russian goods, or commodities carried by non-Russian-controlled ships.

A second spokesperson for the EU said March 7 that no ban on Russia-controlled or owned ships at EU ports has yet been decided.

Source: Platts