Russian oil shipped to Asia in Chinese supertankers amid ship shortage

Highlight:

• G7 price cap restricts ships available to Russia
• Western firms avoid Russian oil trade due to sanctions
• Crude sales for Russia's Asia-bound trade below cap
• Russia, China launched 'no-limit partnership' in 2022

At least four Chinese-owned supertankers are shipping Russian Urals crude to China, according to trading sources and tracking data, as Moscow seeks vessels for exports after a G7 oil price cap restricted the use of Western cargo services and insurance.

China, the world's top oil importer, has continued buying Russian oil despite Western sanctions, after Russian President Vladimir Putin and Chinese leader Xi Jinping launched what they called a no-limit partnership before the war in Ukraine.

The sources said a fifth supertanker, or very large crude carrier (VLCC), was shipping crude to India, which like China has continued buying Russian oil sold at a discount as many Western buyers turn to other suppliers.

All five shipments were scheduled between Dec. 22 and Jan. 23, according to the sources and Eikon ship tracking data.

The G7 price cap introduced in December allows countries outside the European Union to import seaborne Russian oil but it prohibits shipping, insurance and re-insurance companies from handling Russian crude cargoes unless sold for below the $60 cap.

"With Urals prices well below the price cap, the business of buying and trading Urals is essentially legitimate," said an executive with a Chinese firm involved in the shipments.

As the United States and its allies tried to choke off Moscow's energy revenues to limit its ability to fund the Ukraine war, Russia quickly diverted oil exports from Europe last year, mainly to Asia.

The longer voyages, heavy discounts and record-high freight rates ate into profits but the use of supertankers on the Asian routes may now cut shipping costs.

The Russian energy and transport ministries declined to comment. China's Foreign Ministry did not respond to a request for comment, although Beijing has previously called the Western sanctions on Russia illegal.

Indian Oil Minister Hardeep Singh Puri said at a press briefing on Thursday that India would buy oil from wherever it could secure the cheapest price.

Industry sources say Indian refiners are securing a discount of $15-$20 per barrel on Russian oil on a delivered basis compared to Brent.

Russia turns to Asia

Russia is sending Urals from its Western ports for transhipment to supertankers Lauren II, Monica S, Catalina 7 and Natalina 7, all Panama-flagged ships bound for China, while the Sao Paulo is already approaching India, according to three trading sources and Eikon data.

Based on Eikon data and public maritime databases, Lauren II is managed by China's Greetee Co Ltd and owned by China's Maisie Ltd, Catalina 7 is owned by Hong Kong's Canes Venatici Ltd and Natalina 7 by Hong Kong's Astrid Menks Ltd with both managed by China's Runne Co Ltd, while Monica S is owned by China's Gabrielle Ltd and managed by Derecttor Co Ltd. The Sao Paulo is owned and managed by Cyprus-based Rotimo Holdings Ltd.

Reuters was unable to immediately contact the owners and managers because of a lack of public information about them.

The executive with the Chinese firm involved in the shipments estimated a total of 18 Chinese supertankers and another 16 Aframax-sized vessels could be used for shipping Russian crude in 2023, enough to transport 15 million tonnes a year or about 10% of total Urals exports.

A VLCC can carry up to 2 million barrels, a Suezmax vessel up to 1 million barrels and Aframax up to 0.6 million barrels.

While most Russian crude is now heading to China, India and Turkey in Russian or non-western ships, G7 sanctions have led to a shortage of smaller ice-class tankers - many belonging to Greek and Norwegian companies - needed by Russia to transport its crude from Baltic Sea ports in winter.

Russia and China do not have a large fleet of ice-class vessels and using Chinese VLCCs frees them up to travel from Baltic ports to conduct ship-to-ship transfers to bigger tankers in international waters, according to traders.

This practice showed up in Eikon tracking data, including in Mediterranean international waters, with the executive highlighting operations near Ceuta, a Spanish autonomous city on the north coast of Africa, and Greece's Kalamata, a city in the Peloponnese peninsula in southern Greece.

"It's extremely expensive and doesn't make sense to use ice-class tankers for long distances," one European market trader said, explaining why VLCCs were being used.

Another trader said the Ukraine war and sanctions had pushed up demand for smaller tankers and driven down rates for large vessels, helping reduce some of the extra costs Russia faces.