Traders are increasingly turning to near-obsolete oil tankers to transport cargoes of Russian crude as sanctions targeting the nation’s petroleum revenues draw ever closer.

Since June, a total 17 crude cargoes have been collected from Russian ports by tankers that are at least 20 years old.

That’s an age when they reach the end of their normal working lives and owners consider selling them for scrap. It’s more than double the number of such shipments during the same period in 2021, according to data compiled by Bloomberg from Vortexa Ltd. The market is preparing for sanctions from Dec. 5 that will make shipping Russian crude trickier for owners, and insurance harder to obtain. There has been uncertainty about how the country will get its barrels to market, with an increase in
second-hand vessel transactions thought to be earmarked for the trade.
 

Eoin Treacy's view

The retirement plan for old tankers always means scraping them because the metal was often worth more than the ship. Today retirement means be sold to a Russian friendly company and extending the life of the vessel past its serviceable date.

The denial of insurance for vessels that traverse hostile environments like the ocean is going to be loaded with unintended consequences. The reason older ships are scrapped is because the cost of insuring them is so high. Removing the requirement for upkeep, to meet insurance companies’ requirements, suggests an accidental spillage or sinking of a ship is a realistic possibility.

The Baltic Dirty Tanker Index is surging higher which reflects the dearth of ships available to transport oil. The proposed price cap threatens to bifurcate the global shipping industry and that is not something that will easily be overcome.

Brent crude prices extended the decline through $90 today to confirm more than short-term resistance in the region of the 200-day MA. That’s more about the short-term issue of pipeline outages in Texas impacting the physical market than alarming news of economic weakness hitting demand. This is a recipe for considerable volatility going forward even as the near-term outlook is for a retest of the $80 and the 1000-day MA.