European Union leaders reached an agreement this week to ban most imports of crude oil and petroleum products from Russia, but nations were already avoiding the country’s oil, disrupting global flows of the raw material that feed the world.
Russian oil exports had already been affected by some EU members acting preemptively in anticipation of possible measures, in addition to bans from countries such as the United States, according to commodity data firm Kpler.
The amount of Russian crude that is “in the water” has risen to almost 80 million barrels this month, the firm said, from less than 30 million barrels before the Ukraine invasion.
“The increase in the volume of crude on the water is due to more barrels going further afield, specifically to India and China,” said Matt Smith, principal oil analyst for the Americas at Kpler.
“Before the invasion of Ukraine, much more Russian crude was moving to nearby destinations in northwestern Europe,” he added.
The Russian invasion of Ukraine at the end of February has sent the energy markets reeling. Russia is the world’s largest exporter of oil and products, and Europe is especially dependent on Russian fuel.
EU leaders had been discussing a sixth round of sanctions for weeks, but a possible oil embargo became a sticking point. Hungary was among the nations that did not accept a blanket ban. Prime Minister Viktor Orban, an ally of Russian President Vladimir Putin, said banning Russian energy would be an “atomic bomb” for the Hungarian economy.
Monday’s deal between bloc leaders targets Russian seaborne crude, leaving room for countries including Hungary to continue importing supplies through pipelines.
In March, oil prices rose to the highest level since 2008 as buyers worried about energy availability given already tough market conditions. Demand recovered in the wake of the pandemic, while growers kept production in check, meaning prices were already rising before the invasion.
“Russia’s invasion of Ukraine has caused an unraveling of how the global market has historically been supplied by barrels,” RBC said in a note to clients on Tuesday.
The International Energy Agency said in March that 3 million barrels a day of Russia’s oil production was at risk. Those estimates have since been revised downwards, but data collected before the EU agreed to ban Russian oil shows Russian fuel exports to northwest Europe had already plummeted.
But Russian oil is still finding a buyer, at least for now, as the country’s Urals crude trades at a discount to international benchmark Brent crude.
More oil than ever is heading to India and China, according to data from Kpler.
Wolfe Research echoed this point, saying that while Russian oil production has fallen since the start of the war, exports have remained “surprisingly resilient.”
The firm said Russia has diverted exports to places like India, which appears in ship traffic through the Suez Canal. Analysts led by Sam Margolin noted that traffic through the key waterway was up 47% in May compared to this time last year.
“Diverting Black Sea tankers via Suez rather than Europe is a longer route and therefore inflationary for oil prices, and these ‘last resort’ trading patterns may portend greater supply problems in the future.” because the market is clearly down to its last few options to clear,” the firm said.
— CNBC’s Gabriel Cortés contributed to this report.