China is reportedly ready to replenish oil reserves with cheap Russian crude, in a move that could provide a much-needed shot in the arm for tankers.
Bloomberg cited sources familiar with the matter as saying the Chinese government wants to restock strategic reserves with discounted Russian barrels.
No details of volumes or loading ports have yet been revealed.
But Norwegian investment bank Clarksons Platou Securities believes crude tanker owners could “benefit greatly” if Chinese buyers start to ship Russian oil from the Black Sea and the Baltic.
More volumes heading into China from eastern Russia would be less helpful for rates, however, analysts Frode Morkedal and Even Kolsgaard said.
Journeys from the Black Sea to China would involve distances of 8,500 nautical miles (15,750km), against 2,500 nautical miles into European ports.
And these trips would require large ships, ideally VLCCs.
Clarksons Platou explained that because only aframaxes and suezmaxes can transit the Turkish Straits, Russian oil would almost certainly need to be transferred from a smaller tanker to a larger one, a process of reverse lightering.
The investment bank calculated that tonne-miles would increase by 3.3% if 1m barrels per day — a suezmax cargo — of crude were shipped from the Black Sea to China.
This boost could double current VLCC rates from $15,000 to $30,000 per day, all else being equal, the analysts said.
Chinese demand much-needed
Ioannis Papadimitriou, a freight analyst at energy and shipping analytics platform Vortexa, said the largest tankers need Chinese demand to pick up following Covid-19 lockdowns to see higher rates.
“It seems that a rebound of crude demand from the raison d’etre of VLCCs — China — is a necessary condition for a potential freight rate recovery,” he said in a note.
Papadimitriou said VLCCs formerly on the West Africa to China route are picking up more cargoes headed to Europe to replace Russian barrels shunned following its invasion of Ukraine.
Activity there has picked up over the past month, and for VLCCs on the West Africa to UK/Continental Europe route, crowding out suezmaxes.