The “shadow fleet” of ships transporting Russian oil around the world has grown to around 600 tankers, according to trading giant Trafigura.
About 400 crude oil vessels, or 20% of the world fleet, have “switched” from mainstream trading to “ostensibly do Russian business,” Ben Lucock, co-head of oil trading, said in an interview with Bloomberg Television. For oil products tankers, the company sees the level at 200 tankers, or 7% of the world total.
“They had the old days of Iran and Venezuela, and there was a shadow fleet that was relatively small — they would manage the sanctioned casks,” Lucock said. “This Russian stream is very different – it’s huge.”
The European Union imposed a ban on almost all sea imports of Russian refined fuels from February 5, two months after imposing a crude oil ban. The measures will come with a price cap on Russian oil for anyone wanting to access essential Western services like insurance.
The ban will eventually raise crude and product prices as shipping miles increase and routes take longer, Lucock said.
“A lot of people are talking about how to be smart and get rid of Russian oil. But it’s a huge volume that needs to find a new home,” Lucock said. “I think maybe that’s okay in the early days, but over time there will be difficulties in the product markets.”
Oil prices have fallen slightly this year on the back of resilient Russian production and weaker-than-expected Chinese crude demand. Despite tightening international sanctions, many buyers and shippers remain willing to do business with Moscow. Brent crude oil futures were trading around $80 a barrel in London on February 3rd.
Crude oil is trading in an $80-$100 barrel range and will surge above $90 this summer if Chinese demand recovers, although futures could struggle to break triple digits, Lucock said.
“We are building a deep inefficiency into an oil market that has spent decades becoming incredibly efficient,” Lucock said. “This will get worse over time.”
Trafigura does “very little” business in Russian oil products under current regulations, but the company – which is one of the world’s largest commodity traders and until recently had invested in projects with Russia’s Rosneft PJSC – will keep an eye on what the EU is up to announced Sunday.
“We have a group of compliance guys and lawyers waiting to see what the rules are,” he said.
