VLCC freight rates on major routes to China have improved as state-run refiners move away from Russia’s flagship Urals crude following the invasion of Ukraine, according to energy data analyst Vortexa.

Conventional suppliers from the Middle East and Atlantic Basin are likely to supply any additional Chinese demand with state-run companies cautious about lifting cargoes before the European Union’s ban on Russian oil imports by the end of the year, it said.

The industry has said spot charter rates on US-China routes are surging as price-conscious state-run refiners seek to build their stocks before autumn with US crude undercutting Brent prices.

“Urals exports to Chinese state-run refiners could slow to a halt in August, as China aims to stay politically neutral,” said Vortexa’s China market analyst Emma Li in note.

She added: “Although current shipping data suggests that a long-awaited phenomenal recovery is yet to materialise, VLCC freight rates on all major China-bound routes have picked up strongly.”

The Baltic Exchange VLCC time charter equivalent rates to China from The Middle East, West Africa and the US have all moved up sharply this month. The West Africa route stood at $42,579 on Friday after returning to positive numbers for the first time since April on July 13.

Smaller independent Chinese refiners have, however, continued to tap Russian crude during a price battle with sanctioned rival Iran.

‘Dark’ ship-to-ship transfers of Urals in the mid-Atlantic with AIS systems switched off to disguise the trades have been growing, said Li. The tankers shipping cut-price Russian crude previously carried Iranian oil, she said.

Despite the trade shifts, the current impact of sanctions on Russia remains uncertain with Europe still taking ‘normal’ volumes of Russian products, according to Maritime Strategies International (MSI) in its monthly Horizon report.

Russia remains the largest source of the EU’s crude imports despite levels falling by more than 1m barrels per day to 1.85m from pre-war levels, according to the S&P Global global oil tracker.

Significant challenges

Russia’s crude production is likely to face “significant challenges” in 2023 as the EU ban comes into effect, said MSI director Tim Smith in the report.

Robin Brooks, chief economist at the Institute of International Finance, said in a tweet that the West was paying a high price for continuing to buy Russian oil and gas.

But Yale University’s business school claimed this week that the sanctions were proving “catastrophically crippling the Russian economy”. The EU says the sanctions would stop 90% of Russian seaborne imports to the bloc.

It said that Russia had been “reduced to begging for Chinese and Indian purchases” and losing out on tax revenues by selling its crude at a heavily discounted rate.

It claimed in a report Russian oil production would go into a dramatic decline within a few years because of sanctions and being unable to reach global markets.

“The crippling of Russia’s oil industry, which represents the single largest share of Russia’s revenue, would, in turn, reduce the Russian economy to a shadow of its former self,” said the report by Yale’s Chief Executive Leadership Institute.