Global Traders Plan To Cut Down On Russian Oil Purchases From May Onwards: Report
Major global trading houses are planning to curtail crude and fuel purchases from Russia’s state-controlled oil companies by May 15, sources said, to avoid European Union (EU) sanctions on Russia .
The European Union has not imposed sanctions on imports of Russian oil in response to Russia’s invasion of Ukraine, as some countries such as Germany rely heavily on Russian oil and do not have the infrastructure to swap options.
However, trading companies are holding off on purchases from Russian energy conglomerate Rosneft as they seek to comply with language in existing EU sanctions aimed at limiting Russia’s access to the international financial system, sources said.
The wording of the EU sanctions exempts oil purchases from Rosneft or Gazpromneft, which are listed in the law as being “strictly necessary” to ensure Europe’s energy security.
Sources said traders are wrestling with what “strictly necessary” means. It can cover oil refineries receiving Russian oil through a captive pipeline, but it cannot cover purchases and sales of Russian oil by intermediaries. They are cutting purchases to ensure they comply until May 15, when EU sanctions take effect.
The inclusion of Russia’s state infrastructure firm Transneft, which owns major ports and pipelines, would add another layer of complexity to any future sales.
“This will fully comply with all applicable sanctions. We expect our trade volume to decrease further from May 15,” Trafigura, a major Russian oil buyer, told Reuters.
Vitol, another large buyer, declined to comment on the May 15 deadline. Vitol has previously said that Russian oil’s trading volume “will decrease significantly in the second quarter as contractual obligations for the current period decline,” and that it will cease trading Russian oil by the end of 2022.
The war and sanctions on Russia have already prompted many Western buyers of Russian crude, such as Shell, to hold off on new spot purchases.
Refiners in Europe are becoming increasingly reluctant to process Russian crude. This has already hampered Russian exports, though purchases by India and Turkey have offset some of the slowdown. Sales to China also continue unabated.
Rosneft and Gazpromneft’s volumes accounted for 29 million barrels, or about 1 million barrels per day (bpd), in April, which is more than 40 percent of total Ural crude oil exports from Russia’s western ports in April, according to the loading plan. According to.
The International Energy Agency said on Wednesday that Russian oil supplies could drop by 3 million bpd from May.
Rosneft declined to comment. Gazpromneft did not immediately respond to Reuters requests for comment. Other Russian oil buyers, Gunvor and Glencore, declined to comment on the impact of the deadline.
Energy trading firms face compliance and reputational risks from the current raft of Western sanctions. They have to closely examine which entities they can pay to as well as the nationality of their employees. In addition, the lack of a one-time restriction makes it difficult to terminate existing contracts.
“All the companies are sitting with their lawyers to find out what they can and can’t do,” said a senior business source. “It’s not clear what this means for shippers, insurers, for the entire supply chain,” it said, adding that his firm was seeing implications for non-state-owned oil sales.
“Lawyers are feasting on it. Where there is uncertainty, companies will hold back. Russian oil flows will be greatly reduced going forward.”
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