Vortexa graduate analyst Mary Melton examines how Greek-operated tankers moving out of the Russian crude trade could impact fleet supply in the Middle East and elsewhere
The price of Urals surpassed the US$60/bbl price cap for the first time last month, according to Argus Media assessments, highlighting the role of Greek tanker operators, who control more than one-third of tankers which have lifted Russian crude post-ban.
Apart from the rising challenges in remaining sanctions-compliant amid higher Urals prices, the apparent decline of Russian crude exports means Greek operators are further disincentivised from remaining in the Russian trade.
Subsequently, increasing numbers of Greek-controlled tankers in ballast are heading to the Middle East Gulf after discharging Russian crude, and are likely to increase competition in the mainstream trade.
Russian crude volumes (excluding Russia Far East) lifted by Greek operators in July decreased by around 482,000 bbls month-on-month to a level equivalent to around 35% of all cargoes. In comparison, Greek operators lifted around 45% of June cargoes, when Urals crude oil was still under the price cap.
Russian crude oil exports from the Baltic and Black Sea decreased by around 24% month-on-month in July, indicating reduced tanker demand partially drove the Greek operators away from the Russian trade.
As Urals crude oil became more expensive, Chinese buyers turned their attention elsewhere, while Russia is prioritising higher-value products. This is reflected in July’s Russian diesel exports, which were just 2.5% lower than the record-setting number seen in January in advance of the 5 February ban and are well-above seasonal levels.
As clean products are pricing above caps, this begs the question whether a similar shift away from the trade will occur for Greek-operated vessels trading Russian clean petroleum products. If Greek operators continue to lift fewer Russian cargoes there could be added tonnage in the mainstream tanker supply, which is currently manifesting in the Mediterranean.
Both Suezmax tanker and Aframax tanker availability remain at high levels, indicating further pressure is likely on Aframax tanker freight rates, which are already at lows not seen since before the Russian invasion in February 2022 (reference route Baltic Exchange TD19).
Additionally, Greek-operated tankers are increasingly ballasting to the Middle East Gulf after discharging Russian crude, instead of ballasting back to load again in Russia. This is especially pronounced for Suezmax tankers. Since the start of May, on average 40% of Greek-operated Suezmax tankers ballasted back to the Middle East Gulf.
As OPEC+ voluntary cuts from Saudi Arabia persist, putting further downward pressure on tanker demand, extra competition from Greek-operated vessels could put further pressure on rates hovering near one-year lows (TD23).
Since June, this behaviour has also been observed in Greek-operated Aframax tankers. From May to July, the number of ballast Aframax tanker voyages heading directly to Russia after discharging Russian crude oil sharply declined, about 40% from May levels.
Since Greek operators were covering a significant part of the Russian crude oil trade, could Urals exports be capped by limited fleet availability? It is rather unlikely for now as Russian exports are declining but even if volumes bounce back, transport bottlenecks would be short-spelled.
Historically high prices of old Aframax tanker and Suezmax tanker tonnage give optionality to Greek operators to sell vessels to newly created commercial entities which could in turn keep those vessels active in the Russian trade. A string of sales by Greek operators this summer of older tonnage, averaging 17 years, shows this trend may already be materialising.
Even if a highly unlikely scenario occurs where high Russian exports cannot materialise due to the lack of tonnage, which eventually could lead to a global rise in crude prices, the European Commission and the G7 have the ability to review the cap mechanism.
Lifting the cap could in turn attract Greek operated vessels back to the Russian trade. Ultimately, the price mechanism was put in place to continue to facilitate Russian volumes.
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