After being hammered by Western sanctions in 2022, Russian base oil exports have continued to fall this year as sanctions were tightened and global demand weakened, industry sources and analysts told Lube Report.
Russian refiners have managed to ramp up exports to destinations such as Central Asia and the Southern Caucasus in the past two years, but those increases were far offset by decreased shipments to Europe.
Russia exported 840,000 tons of base oils in 2022, a 31% drop from 1.23 million tons in 2021, according to a recent presentation by Argus Media. Ports along the Baltic Sea, historically among the main conduits for those exports, saw large decreases after the European Union sanctioned the country’s banking and oil sectors in the spring of that year, in response to Russia’s invasion of Ukraine.
“While in 2021 Russia was able to move 533,000 tons of base oils through the main Baltic ports, the exported volumes dropped to 257,000 tons in 2022,” said Argus analyst Dmitry Yudakov, who gave a presentation on the topic at RPI’s Lubricants Market conference in Moscow Nov. 9. “Eastern European destination shipments dropped from 163,000 tons in 2021 to 87,000 tons in 2022.”
The base oil shipments through the Black Sea port of Novorossiysk were also disrupted by the risk caused by fighting and fell from 257,000 tons in 2021 to 194,000 tons in 2022, according to Argus.
The EU and several allied countries implemented a stricter ban on Russian energy products on Feb. 5 this year, causing a further ban on Russian base oil imports to the EU, which had been the biggest foreign market for those products before the war. From January to August of this year they dropped 50% from the same period in 2022, Argus found.
The sanctions caused change in the export destinations and disrupted logistics channels.
From January to August 2023, the Russian shipments to South Caucasus amounted to 50,000 tons, a tenfold increase from just 5,000 tons in the same period in 2021. The base oil supply to Central Asia also increased, from 13,000 tons in the eight months of 2021 to 65,000 tons same period this year. Export to other destination such as Africa or South America also increased, from 10,000 tons to 24,000 tons.
“We observe how the Russian base oil marketers are intensively rerouting their volumes meant for export to other previously seldom used destinations,” another analyst told Lube Report. Denis Varaksin, of DYM Resources, a base oil trading firm based in Berlin, said the fall-off in Russian exports eased in September and October “as suppliers recover their supply channels and find new customers,” elsewhere besides Europe.
“This is built on the increased demand for Russian Group I base oils. We registered 60,000 tons of monthly exports for both September and October,” he said Monday.
However, this recovery will be short lived and last by December, as “the prices start to decline.”
“Obviously, it is difficult for the Russian exports to grow, primarily because the global base oil demand is weak and because of the expensive freight. Logistics is much more complex now, and successful movement to the final destinations involves reexport through third countries,” he observed.
If the global market continues to be weak, he predicted, Russian exports will remain slow and run at 40,000 tons to 50,000 tons monthly in the first half of 2024.