With its crude banned from the EU, Russia is hopeful that Brics members will make up the bulk of its energy exports soon, reports Hellenic Shipping News.
Shipbroker Gibson noted in its weekly report that Russian President Vladimir Putin had made an announcement stating his intentions to pursue deeper economic and political ties within Brazil, India, China, and South Africa. They’re all countries that have not sanctioned Russia, as the Western nations have, and who are broadly pursuing an alternative policy to that of the West when it comes to energy security and Russia.
Russia intends to offer heavy discounts on oil and products to the Brics nations in exchange for greater imports of manufactured goods to substitute Western brands that have left the country.
Gibson points out the importance of considering how much oil the country currently exports, versus the additional volumes that could be shipped to Brics members.
The amount of crude that is exported to Western or Western-aligned nations has been declining since 2015, while Brics nations have increased their imports from Russia. Between January 2015 and May 2015 crude exports from Russia to other Brics nations increased from 165 kilo barrels per day (kbd) to 2.250 million barrels per day (mbd), representing an overall increase of 4.5% to 44% of total Russian exports. Non-Brics exports fell 39.5% in the same period, dropping from 3.55mbd to 2.875mbd.
In terms of Classic Performance Products (CPP), most Russian exports currently go to EU countries, which are set to end Russian imports. This will likely lead to increased CPP volumes between Russia and the other Brics nations.
Higher CPP flows out of Russia to Brazil and South Africa could displace Middle Eastern and Indian volumes, which would then likely be rerouted longer haul to Asia and Europe, partially offsetting lost Russian products in those regions. Higher Russian CPP volumes to Latin America could displace USG volumes, which may also be rerouted to Europe.
The trade data shows that there is a structural shift under way in the tanker market towards less efficient, longer-haul trade. Gibson remarks that both tanker shipping and the world in general may have to come to terms with this new political and economic reality that Russia’s energy trade will continue despite western sanctions.
In terms of South Africa, a knock-on effect could potentially result in the country seeing a reduction in fuel prices. Perrin De Gouveia, head of procurement for Ener-Gi Fuel Corp, comments that by Russia sending discounted Brent Crude to any of the super refiners that form part of the Brics nations, a reduction in the price of the final product purchased by consumers in South Africa could be possible.
De Gouveia notes that the discounted oil and products may affect the overall global Brent crude prices, also contributing to the knock-on effect. This is because the petrol price in South Africa is significantly based on the price of Brent crude, which contributes 49% to the overall price.
Should South Africa receive direct imports of CPP from Russia, this would obviously impact the local fuel price too. However, De Gouveia believes that importers may still play the market in order to maximise profits.
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