Russia, the world’s biggest energy producer has been selling less crude to Europe while pumping more oil to China, according to media reports. An analyst in Russia’s largest oil exporter Transneft told Russia Today that Beijing has become a more preferable partner in the oil trade for Moscow while Bloomberg reported that Russia will have shipped 19 percent less oil through its ports on the Baltic and Black Seas in the first five months of 2018, and sold 43 percent more oil to China through March.
“Given the current geopolitical conditions, the shift towards China from Europe is a protective measure. This shift in oil trade allows the Russian Federation to some extent to secure the oil industry from the sanctions of the West,” Anton Pokatovich, chief analyst of Binbank told RT.
The shift is likely to leave Europe’s refineries looking replacement for crudes, according to Alan Gelder, vice president for refining, chemicals and oil markets at Wood Mackenzie Ltd. in London.
“It’s almost like a crude shuffling,” Gelder told Bloomberg. “The Middle East will have less medium-sour crudes going to Asia because of the growth in Russian volumes, so then they would push those barrels into Europe.”
Russia is the largest seller of oil to both Europe and China. Chinese refiners are receiving increased volumes of Russian crude oil via inland pipes and seaborne shipments from the eastern ports of Kozmino, De-Kastri and Prigorodnoye. A second Sino-Russian oil pipeline began operations on January 1, 2018, doubling China’s capacity to import crude from the East Siberia-Pacific Ocean (ESPO) system to 30 million tons annually, or about 600,000 barrels a day, Xinhua News Agency reported.
Originating in the Russian town of Skovorodino, the new pipeline enters China at Mohe which borders Russia and terminates at Daqing in northeast Heilongjiang Province. The first line from Mohe to Daqing was put into use on Jan. 1, 2011, with an annual capacity of 15 million tonnes.
With the launch of oil futures in renminbi, both China and Russia have said they could reduce the use of the US dollar in oil trade.
As Russia is aiming to increase its oil trade with Asia at Europe's expense, the lost Russian cargoes are being felt in tanker markets.
“The tanker sector is getting hit in every region,” Jon Chappell, a shipping analyst at Evercore ISI told Bloomberg. “If Russia were to have more and more cargoes going to pipelines instead of ports, then as the industry starts to recover it may be a segment that’s weighed down by the fundamental shift in demand.”
Expansion of the Russia-China pipeline will also hit Aframaxes employment in 2018, Rajesh Verma Lead Analyst at Drewry Shipping Consultants said. Aframax is an oil tanker smaller that 120.000 mt deadweight.