Weight of Freight: Urals crude seeks outlets under the cover of darkness

Author Matthew Mitchell, Market Reporter - Freight

Russian charterers have been hunting for alternative ways of exporting crude as EU sanctions loom, and many have started to consider running “dark” — long the key to sanctioned Iran maintaining a presence in the global oil market.

Generally older, often uninsured tankers carrying sanctioned Iranian and Venezuelan oil make up this “dark fleet”, so-called because such ships will often turn off their tracking signals when loading or discharging their sanctioned cargoes to disguise their location.

Shipbroker BRS estimates the size of the dark fleet to have been around 268 vessels of 34,000 dwt or above over the past few years. But import and insurance bans on Russian oil and vessels coming into force later this year are expected to swell that number as the country seeks new options to export its supplies. BRS estimates that by adding the Russian-linked fleet there could be as many as 401 tankers in the dark fleet, accounting for just over 9pc of the global fleet capacity of vessels of 34,000 dwt and above.

The dark fleet helped maintain combined Iranian and Venezuelan crude exports of 1.25mn b/d in January-September, according to Vortexa data. But Russian crude exports are significantly higher than this — 1.85mn b/d of Urals and another 1.28mn b/d of other seaborne grades. A corresponding increase in the shadow fleet to carry these exports would make it a considerably more visible part of global seaborne oil trade, calling at more ports than such vessels do at present.

In reality, it is unlikely that the shadow fleet would expand to such a degree, but scrapping of older tankers has already slowed, helped in part by record high rates — September was the strongest month for very large crude carrier (VLCC) earnings since May 2020 — suggesting that more may be going over to the shadow fleet. Once tankers are more than 15 years old and unsuitable for many large international charterers, they often move to the shadow fleet. Second-hand vessels are typically sold by larger, more commercially visible shipowners to smaller, less-transparent owners, many based in China, that are more willing to use the older vessels to carry out sanctioned trades.

SSY, another shipbroker, said that across the first nine months of this year removals from the crude and product tanker fleet of vessels of 10,000 dwt and above fell by 1.6mn dwt year on year as elevated asset prices have resulted in the second-hand market being much more profitable. Just over 60 vessels changed hands in September for further trading, a monthly record, according to BRS, while SSY said that a number of vintage VLCCs were sold for further use in August and September.

Besides the overall increase in ships carrying sanctioned oil, it also appears that some of the existing dark fleet have begun to switch from Iranian to Russian business. BRS estimates that there are around 83 units in the dark fleet owned by third parties that are not affiliated with any of the country’s whose oil is sanctioned. With China and India making up the majority of the market for deliveries of sanctioned oil, there is potential for competition between Iran and Russia over access to those vessels willing to carry their product. At present, higher quality and heavily discounted Russian crude appears to be attracting a growing number of vessels to the trade. At least 12 ships previously transporting Iranian crude from the Mideast Gulf have recently loaded at Russian ports in the Black and Baltic seas, according to Argus tracking data.

One use of the vessels in the shadow fleet has been as floating storage in strategic locations such as the Gulf of Guinea, where smaller, unsanctioned vessels can load the oil far from the origin country. Russia appears to have adapted this aspect of the dark fleet to its own purposes as well, with Aframax vessels loading Russia oil from VLCCs in the Mediterranean and Atlantic. But Russia also faces a challenge, besides the quantity of oil it has to move, in using the shadow fleet. Historically, the shadow fleet has carried primarily crude and fuel oil from Iran and Venezuela, suggesting that Russia may find additional difficulties sourcing the vessels it needs to export its clean oil products, once EU sanctions on Russian oil product trade come into force on 5 February.

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