Oil May Soon Get A Boost As Russia Failed To Find Enough Tankers

Key Insights

• Russia struggles to find vessels to transport its oil. 
• The price cap on Russian oil will be imposed by December 5, and Russia does not have enough time to find more vessels. 
• Russian oil production will likely decline in the upcoming months, which will be bullish for oil markets. 

Russia Struggles To Find Oil Tankers

Oil traders continue to prepare for December 5, when G7 countries will impose a price cap on Russian oil. The price cap remains unknown, but recent reports indicate that it may be somewhere in the $60 – $65 range. Russia has previously stated that it would not supply oil to countries that impose a price cap.

As the price cap mechanism cuts Russia from West-controlled ships and insurance, Russia will have to rely on its own fleet to transport its oil.

The Russian Institute for Energy and Finance Foundation has recently made an attempt to count how many oil tankers are needed to support Russian maritime exports of 3.5 million bpd). The research was based on the data from Braemar. According to the IEF, Russia needs 157 Aframax vessels, 65 Suezmax vessels and 18 VLCC vessels.

The Russian-owned fleet consists of 50 Aframax vessels and 10 Suezmax vessels. This year, 70 vessels (aged 15 years or more) have been sold to unknown firms, and IEF assumes that they would be used to transport Russian oil.

Even if all these vessels are used by Russia, the potential deficit is up to 110 vessels, assuming that Russia completely loses the access to the services of Western shipping companies. It should be noted that S&P Global has recently arrived to the same conclusions.

Russia’s Oil Exports Will Likely Fall After December 5

Brent oil is already trading near the psychologically important $100 level as traders prepare for a potential deficit in the European markets. U.S. markets get support from local oil producers, so WTI oil is trading at a significant discount to Brent oil.

Back in September, IEA forecasted that Russian oil production would decline by 1.9 million bpd in February 2023 from the levels seen in February 2022. This forecast looks realistic assuming that Russia faces serious problems with transportation of its oil.

It looks that oil markets have started to price in the potential problems with the Russian oil exports. Both Russia and G7 will likely try to show that they are “tough”, so G7 countries would cut Russia from shipping services in December, while Russia would not agree to the price cap scheme.

There are too many ships to substitute, and Russia would not be able to get 100+ vessels in just a month. In this light, Russian exports will start declining at the end of the year, which will be bullish for oil prices.

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