Fleet constraints more likely for Russian CPP trade
Elevated Russian CPP exports and rising product prices could mean constraints on the fleet lifting Russian CPP.
After last week’s investigation of possible constraints on the fleet trading Russian crude, we are repeating this exercise for the fleet trading Russian CPP, with a particular focus on the MR segment and diesel exports in the context of strengthening diesel margins worldwide and Russia’s prioritisation of higher value exports.
The Greek-operated fleet comprises around one third of all vessels which have lifted Russian CPP post-ban (a similar number to the crude tanker fleet). However, Greek-operators’ behaviour in Russian energy markets has diverged in the past few months. Unlike the crude fleet, a mismatch between the elevated Russian CPP exports and lower clean fleet availability is likely and constraints may manifest if product prices continue to increase.
Crude volumes lifted by Greek-operated vessels steadily decreased since May due to lower crude exports out of Russia. In contrast, for all Russian CPP exports (excl. LPG and chemicals) the volume lifted by Greek operators has remained consistent, with a share of around 30% every month since May. Greek-operated clean tankers have not moved out of the Russia trade because product volumes out of Russia have remained high.
Post-ban Russian CPP exports (excl. LPG+ and other clean products) by vessel operator (kbd, LHS) vs. Greek-operated share (%, RHS)
MR tankers and diesel volumes
With diesel exports out of Russia much higher than the seasonal norm and rising diesel margins worldwide, there are strong incentives for Greek operators to continue lifting Russian diesel, mostly in the MR segment. Greek-operated MR tankers are still ballasting back to Russia after discharging at firm levels. However, recent months have shown slightly increased diversification in ballast destinations. This suggests that Greek operators are overall more inclined to stay in Russian CPP trade, rather than using other markets to optimise ballast legs or migrating out of Russian trade entirely. For now, we do not see any indication that Greek-operated clean tankers in the Russian CPP trade could introduce more competition in non-Russian trade as is happening in the crude tanker market.
Ballast voyages of Greek-operated MR tankers after discharging Russian CPP per destination (no. of voyages)
Possible upcoming challenges
In recent weeks, Russian products prices have been on the rise, particularly for diesel and naphtha, which have been trading above the respective price caps of $100/bl and $45/bl according to Argus Media assessments. The increasing price of Russian diesel is significant due to the prevalence of Greek-operated MRs in the trade. Since the start of August Baltic-origin Russian diesel has traded at an average premium of 2.3% above the price cap and Black Sea-origin Russian diesel at an average premium of 4.5% above the price cap, according to Argus assessments. If prices continue to increase, Greek-operated tonnage which has previously satisfied demand to transport Russian products will find it significantly more difficult to do so while being price cap compliant.
Additionally, there have been almost no recent clean tanker sales by Greek-operators. This is in stark contrast to the recent sales of crude tankers to unknown or newly created entities and has kept tonnage available to load Russian crude volumes outside the price cap mechanism. Because Greek operators are holding onto this clean tonnage, if prices reach a level such that Greek operators are pushed out, they will leave the Russian CPP trade with their tankers. If this scenario plays out, given the proportion of Russian CPP flows facilitated by Greek-operated vessels, the price cap mechanism would be inflicting significant damage on Russia’s ability to export CPP.
What could complicate the picture from the Russian perspective is that in contrast to all other oil exports, diesel exports are going to a diverse set of buyers. While demand diversification is generally a good thing, in this case it could lead to a situation where many smaller buyers reliant on Greek/Western shipping and insurance services could just stop taking Russian diesel and switch to alternative sources. In contrast, in crude there is a very high incentive and preparedness with the dominant Indian and Chinese buyers to make sure the logistical chain works under all circumstances.
Though the higher product prices are a recent development and it is too early to tell if this will continue, if this fleet constraint manifests as Europe approaches another winter, a review of the price cap mechanism could happen if needed to alleviate fleet constraints and keep global diesel supplies steady.
