Russian Fuel Oil Exports to Fall Fuel oil exports from Russia’s key west-facing ports in the Black and Baltic Seas dropped off significantly in April and will remain well below pre-war levels through the rest of the year, due to US and UK sanctions and self-imposed sanctions among European buyers. A move to officially sanction oil at the EU level, as currently being discussed, will only pressure exports further. According to loading schedules, fuel oil loadings at the Black Sea ports at Novorossiysk and Tuapse fell nearly two thirds in April, down significantly from March. Several Russian refineries that traditionally produce fuel oil for export have been forced to significantly reduce crude intake due to an inability to export refined products and a lack of spare storage capacity. This will force Russian fuel oil production to fall in the second quarter lower than before the war.
Facing official sanctions and self-sanctioning in Europe, Russia will seek to increase fuel oil exports to Asia, predominantly from its Far East ports, which have historically averaged only 85,000 b/d. Greater Asian demand for Russian-origin products could be driven by heavy discounts to non-Russian products. For example, Argus reported in late April that HSFO at Novorossiysk was trading at discount. These huge discounts will likely encourage countries like India to increase imports of Russian HSFO, displacing HSFO traditionally imported from the Middle East. Inland fuel oil demand in Southwest Asia typically peaks in the summer due to greater power demand. Greater demand from Southwest Asia and China will likely drive a gradual recovery in Russian exports by the end of the year, particularly if Russian fuel oil remains discounted to non-Russian-origin products. In all, we expect Russian exports will drop in May before edging back up by year end.