Bunker market participants across Europe have turned cautious about sourcing fuel from Russia following its military invasion of Ukraine end-February, with many anticipating tightened supply and higher bunker prices in the wake of sanctions against Russia.
While the oil trade with Russia is mostly not subject to sanctions for now, some Russian banks have been banned from accessing the SWIFT international payment system. Trading companies use banks as intermediaries for transactions, letters of credit and clearing services.
Most bunker suppliers said they have taken a wait and see approach to buying Russian oil.
“Any prudent bunker supplier or buyer based in sanction countries will not be buying Russian oil,” a bunker trader said. “A lot of traders have stopped doing bunkers in Russia because of the invasion. This will cause huge problems because, while Russia have allies in China, Saudi Arabia and South America, most of Russia’s shipping industry is US based.”
Tightness is expected across all fuel oil grades over the coming weeks at ports in Gothenburg, Skaw, Hamburg, and Gdansk, with less Russian oil moving around Europe, according to sources.
Russia is the primary source of bunker fuel at the ports. Hamburg imported 822,000 mt of Russian fuel oil in 2021, while Gothenburg imported 366,000 mt during the same period, according to Kpler data.
“We can expect some delays in getting product, but the question is when,” said a Rotterdam-based bunker supplier. “Perhaps next week onwards or the week after next.”
Some suppliers have made the decision to stop fixing cargoes in the region, as demand for bunker fuel dropped at the Russian ports of St. Petersburg and Novorossisk.
“We’ve made the decision to stop fixing cargoes in Novorossisk and won’t be lifting any more fuel there as it stands,” said a bunker supplier. Novorossisk exported about 5.63 million mt of fuel oil in 2021, according to Kpler.
SWIFT payment issues
Western allies excluding some Russian banks from the SWIFT payment system is expected to cause a further decline in demand for Russian fuel.
SWIFT allows money transfers between banks. All transactions by a foreign bank that are in US dollars must go through the SWIFT system, therefore oil transactions priced in US dollars have to use it.
However, if a Russian company has a bank account in Singapore or the US, they can avoid the sanctions by sending their transactions through these bank accounts, a source said.
“Euros and dollars are being accepted in Singaporean and US bank accounts, which is how [Russian] companies are sidestepping any potential SWIFT issues at the moment,” said a bunker trader.
Another source said they were not yet facing payment issues with transfers to Russian companies. “We are still able to make payments. Sometimes corresponding banks do have queries about Russia, but we haven’t had any issues with payments since the invasion began,” the source said.
Russian energy sector punished
Shell, BP and Equinor have announced plans to exit Russia, with BP divesting its stake in Rosneft, and Shell quitting the flagship Sakhalin 2 LNG plant jointly managed with Gazprom.
“What we are seeing is that the entire energy complex is essentially self-sanctioning,” said Ole Hansen, head of commodity strategy at Saxo Bank told S&P Global Commodity Insights. “Even though the sanctions weren’t supposed to target the Russian energy sector, we are seeing tightness across all products as companies are playing it safe and staying away from Russia for now.”
Canada said late Feb. 28 it will ban the import of Russian oil, making it the first G-7 nation to impose an embargo. With Canada importing almost 18,000 barrels of petroleum products from Russia in 2018, Russia is the country’s third-largest foreign supplier after the US and Saudi Arabia, according to the Canadian Association of Petroleum Producers.
The UK has banned Russian-owned, operated, controlled, chartered, registered, or flagged vessels from entering British ports, but not Russian cargoes.
Calls for a more united front against Russian oil exports have intensified, with two key US senators urging an immediate end to imports of Russian crude oil.