Data and trader insights reveal that freight rates for Russian ESPO Blend oil from the Far Eastern port of Kozmino have surged fivefold, according to a Reuters report.
This increase is attributed to a scarcity of vessels following new US sanctions that have reduced tanker availability in the market.
Impact of rising freight costs
Higher freight costs are significantly impacting the revenue of Russian oil sellers, who are already grappling with the challenges posed by US sanctions and complex logistical hurdles.
These increased freight costs further diminish their profits and add to the existing financial strain.
Moreover, the scarcity of vessels in the region during the winter season could potentially lead to disruptions in the loading process, causing further delays and impacting the overall supply chain, Reuters said.
This combination of factors–higher freight costs, US sanctions, logistical complexities, and potential loading disruptions–creates a challenging environment for Russian oil sellers, impacting their ability to operate efficiently and maintain profitability.
The US sanctioned major Russian oil companies Surgutneftegaz and Gazprom Neft, along with over 180 vessels, on January 10.
These are the harshest sanctions yet imposed on the Russian oil industry.
The sanctions target Russia’s revenue stream from oil exports as the western powers try to halt Moscow’s efforts in the war in Ukraine.
Cost of shipping from Kozmino port
Traders reported that the cost of shipping oil from Kozmino port to China on Aframax tankers, which have a capacity of around 100,000 tons, has surged to between $6.5 million and $7.5 million, according to the report.
This is a significant increase from the average cost of $1.5 million at the end of last year.
Data from Simpson Space Young, accessed through LSEG Workspace, showed that freight rates for oil shipments from Kozmino to northern Chinese ports were at $6.5 million.
Shipments to southern Chinese ports were at $7.5 million.
Traders reported that freight rates for ESPO Blend oil shipments to India experienced a significant surge, reaching approximately $9-10 million for a one-way trip, according to Reuters.
This represents a substantial increase from the rates below $3 million observed at the end of 2024.
India and other Asian countries such as China are having difficulties accessing Russian oil cargoes as traders avoid sanctioned tankers.
Hence, Asian countries have been looking at crude grades from the Middle East and African nations.
Shortage of vessels
The US sanctions targeted over 80 tankers involved in Russian oil shipments to Asia, many of which were used for ESPO Blend oil shipments, according to one of the traders quoted in the report.
The trader told Reuters:
Freight is so expensive, but even so it doesn’t solve the issue: there are not enough vessels.
Despite a shortage of tankers, oil loadings from Kozmino have proceeded without issue in recent weeks, according to another trader.
The eastern port’s oil exports were disrupted during the first ten days of January.
The terminal was closed for several days due to a severe storm.
According to traders, sellers can also secure ESPO Blend oil supplies by utilizing ship-to-ship (STS) locations, such as those near Chinese ports or Yosu, South Korea.
The STS point near Yosu was frequently utilized during the suspension of Sokol oil sales last year, when Russian companies had a number of oil cargoes unsold on the water.
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