Russian oil producers have found a way around Western sanctions and price ceilings. They pass off Russian naphtha for gasoline according to documents, which allows them to sell oil products at prices even higher than the established ceiling. However, the number of countries willing to take this risk is falling, and current partners are demanding big discounts. Bloomberg writes about this, citing sources familiar with the details of the trade, as well as data from analytical companies FGE and Kpler.
Nevertheless, the window of opportunity for Russian suppliers is closing, the agency notes. Countries that actively accepted naphtha are reducing consumption due to high sanctions risks or are demanding significant discounts that offset the profits from this scheme. Naphtha is a dirty petroleum product used to make plastics and petrochemicals. The current price ceiling set by Western countries is $45 per barrel, and $100 per barrel for "clean" oil products such as gasoline.
In addition to the substitution of documents, Russian companies use another method: tankers with oil products simply do not disclose the final destination. This method complicates monitoring, since the ship can provide transshipment of goods at sea, as well as mix oil products with others, making it more difficult to trace the origin of the fuel. After the imposition of sanctions, Russia lost two key sales markets for naphtha – Europe and South Korea in Asia, but so far its sales volumes have remained the same as before the restrictions – at the level of 1.34 million tons.
The ports of Singapore and the United Arab Emirates (UAE) have become new hubs for Russian oil products. The volume of naphtha supplies from Russia to Singapore quadrupled in March and reached 164,000 tons, while deliveries to the port of Jumeirah were carried out for the first time and reached the level of 156,000 tons. However, as the agency notes, some of the partners refused to buy oil products due to false documents or began to demand additional discounts due to increased risks. Discount in ports can be $10-20 per ton.
Kpler notes that it was the tricks of Russian companies that made it possible to maintain the previous volumes. However, this is only a temporary measure, and in the coming months, exports will begin to decline, as the costs of companies are too high, as well as the risks for potential buyers who agree to such conditions. According to the company, before the imposition of sanctions, almost no cargo left the ports without a destination, but in March 2023, approximately 25% of tankers no longer showed the final destination.
Against this background, analysts expect a reduction in the supply of petroleum products from Russia in the second quarter of this year, and Russian refineries will have to cut production. Only discounts can help maintain supply volumes. However, then there may no longer be a need for false documents, since prices may fall below the ceiling set by the West.