Freight Rates for ESPO Blend Crude to China Ease on Higher Tanker Availability
In April, freight rates for ESPO Blend crude shipped from the Russian port of Kozmino to China have eased to the lowest levels since mid-January. This decrease is attributed to higher availability of tankers, according to three traders familiar with the market.
The lower rates are beneficial for Russian exporters as they will spend less on freight, allowing them to earn more for their oil shipments. Rates on the route have dropped to approximately $2 million-3 million for April-loading cargoes, down from $4 million-5 million for February and March volumes. The increased availability of non-sanctioned tankers joining the ESPO market has contributed to this decline in rates.
Impact on Oil Prices
As a result of these developments, Russia’s ESPO Blend oil price fell below the $60 per barrel Western price cap level in early April for the first time ever. The international Brent benchmark also plummeted to historic lows, further influencing the pricing dynamics in the market.
While the price has been fluctuating since then, it remains around the $60 per barrel cap level, as reported by the traders. The combination of higher oil prices and lower freight rates may potentially push the ESPO Blend price back above the cap, creating complexities in vessel procurement.
Sanctions and Transportation Costs
The cost of transporting ESPO Blend to China surged to $6 million-$7.5 million following U.S. sanctions imposed on vessels involved in Russian oil shipments on January 10. These sanctions targeted many vessels operating at the Kozmino port, impacting transportation costs significantly.
Previous to the sanctions, shipping oil from Kozmino to northern Chinese ports cost less than $1.5 million. Traders suggest that these levels could be achievable again this year if no additional restrictions on Russian oil transportation are introduced.
Overall, the evolving freight rates and pricing dynamics in the ESPO Blend market reflect the interplay between supply, demand, and geopolitical factors impacting the global oil trade.
(Source: Reuters)