Companies and refineries are avoiding Russian oil and no one is buying it

A week after Russia’s invasion of Ukraine, Russian oil is struggling to find buyers who fear stigma, potential future sanctions and logistical complications, despite mounting concerns about a market shortage.

“The oil trade is still frozen and we estimate that 70% of the market is paralyzed, with a particularly large impact on offshore sales,” explains Livia Gallarati, an analyst at consultancy Energy Aspects.

So far, Western sanctions against Russia are trying not to affect the energy sector, which is crucial for Europe: Germany, for example, imports 55% of its gas from Russia. As for oil, Russia is the second largest oil exporter in the world after Saudi Arabia.

But with pipeline deliveries already scheduled to continue, many companies and refineries prefer to avoid Russian oil despite the tensions in fuel supplies.

The danger is that prices will rise further, after breaking records almost every day: the price of a barrel of Brent crude, a standard for the European market, is more than $110, compared to less than $65 a year ago.

In addition to the risk of governments changing their minds about the sanctions, analysts point to the possibility that importers could face public condemnation.

The group said in a statement that Finland’s Nesti refinery in northern Europe “almost completely replaced Russian oil with other sources, especially from the North Sea.”

Sweden’s Ninas also announced that it would “stop buying raw materials of Russian origin”.

Potential Asian Buyers

According to Gallarati, even oil that is not Russian, but is exported from that country, such as Kazakhstan, is currently having difficulties leaving Russian ports, as shipping companies also avoid it.

But he believes that buyers’ uncertainty could dissipate if the West continues to lift energy sanctions. “We will be able to find out which buyers want to resume purchases,” he said.

“China and India are likely to resume purchases once the shipping, insurance and payment issues are resolved,” he said.

Sanctions on Russia make it difficult and expensive to secure and ship goods, as well as financial transactions. But the Indian and Chinese refineries will not be able to absorb all the Russian production: each country builds its refineries on the basis of the oil it intends to use, and the infrastructure is difficult to adapt.

In the long term, Yarand Rystad, director of analyst firm Rystad Energy, predicted, “Western companies will stop helping Russia with financing and technology for its extraction projects.”

Rystad considered that even without direct sanctions, Russian exports would drop by one million barrels per day.

He stresses that “giant projects such as Vostok Oil are at risk of delay and other projects may simply be canceled, because the life of oil projects is limited with the energy transition.”

Swiss oil products trading company Trafigura announced, on Wednesday, that it is “reviewing its options regarding its silent stake in Vostok Oil”, one of the main projects of the Russian oil company Rosneft in Siberia.

European buyers are currently turning to Middle Eastern oil, but major producers able to increase production, the United Arab Emirates and Saudi Arabia, are reluctant to do so.

This situation does not go unnoticed by Iran, which is in the midst of nuclear negotiations in Vienna, Austria.

If the United States lifts sanctions on that country, Iran’s oil minister said in February that his country could export 2.5 million barrels per day, roughly half the volume of Russian exports.

Last Wednesday, he said he could ramp up extractions even more.