Sanctions Crashed Russian Oil Prices

The cost of transporting it is rising to a record high.

Within a year, the cost of freight for large oil tankers has risen six times, potentially increasing the cost of transporting Russian oil.

Russia is offering Indian refineries to buy Urals black gold at the lowest price in at least two years amid U.S. sanctions on oil companies Lukoil and Rosneft. This pricing policy may lead Indian refineries to partially resume purchases of Russian crude, Bloomberg reported.

The publication's interlocutors said Indian refiners are being offered to buy Russian oil at $7 cheaper than the cost of Brent crude. They added that the offer concerns cargoes that will be shipped in December and will arrive in January. The journalists add that before the US sanctions were imposed, the size of the discount on Russian crude was $3.

The publication notes that most Indian refineries have refused already ordered Russian crude that was due to arrive after sanctions against Rosneft and Lukoil took effect. But the frenzied discounts are changing the mood in the market.

"The mood of Indian refiners has changed in recent days due to lower Urals crude prices and some refiners are now willing to buy Russian crude from sellers who are not under sanctions," journalists' sources said.

At the same time, the sources add that only about a fifth of the offered oil shipments come from companies that are not blacklisted.

With the U.S. sanctions against Russia and growing demand for oil from the Middle East and the U.S., tanker freight rates have also jumped, which could potentially increase the cost of transportation of Russian oil. As Bloomberg notes, the cost of renting an oil supertanker on the benchmark route has jumped to the highest level in the last five years.

It is noted that the base freight rates for very large oil tankers, which can transport up to 2 million barrels, at the end of last week rose to almost $137,000 per day. That brings their year-to-date increase to 576%.

"This is the highest since late April 2020, surpassing the last multi-year peak reached just two weeks ago. The broader index covering VLCC rates (a class of tankers with a capacity of 200-320 thousand tons) on several routes also reached $116,400 per day, a new five-year high," the publication adds.

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