Russia sells crude at record premiums to Asia after freight rates surge

Russia, the world’s No. 2 oil producer, has become an unintended beneficiary of US sanctions after an embargo on Chinese ships drove up tanker freight rates, spurring record premiums for Russian crude that takes just days to arrive in North Asia.

Demand for key Russian oil grades sold in Asia has been strong in the past month after an attack on key oil processing facilities in Saudi Arabia drove up prices for spot crude while Asian refiners are processing more lowsulphur grades to meet shippers’ demand for cleaner fuels from 2020.

However, soaring freight rates in the past two weeks prompted Asian buyers to bid up for cargoes that ship over shorter distances such as oil from Russia.

These factors pushed spot premiums for ESPO Blend crude , loading from Russia’s Pacific port of Kozmino, to hit an all-time high of nearly $9 a barrel to Dubai quotes in a Surgutneftegaz spot tender for two cargoes loading in early December.

The spot premium for Russian Sokol crude also jumped to a five-year-high of around $8.30 a barrel to Dubai quotes as ONGC Videsh sold a cargo at that level to a Japanese refiner earlier this month, traders said.

Freight rates soared to new highs over the past couple of weeks after nearly 300 oil tankers, or 3% of the global fleet, were placed off limits as companies fear violating US sanctions against Iran and Venezuela.

“Russia’s Urals (crude) has been doing fine this year mostly thanks to sanctions against Iran and Venezuela and now ESPO has clearly benefited. U.S. sanctions really do Russian oil grades good,” a Western trader said. (RTRS)