Is Russia Turning Its Back on Europe?

2018 has marked big changes for the Russian economy, with the world's largest nation significantly reshaping its crude oil market over the past five months. According to the latest loading programs obtained by Bloomberg exports to China have doubled. Meanwhile, Russia has slashed seaborne shipments to the Black and Baltic Seas and in turn, cut off supplies to Europe.

Russia ramps up Chinese shipments

Since January 2018, Russian pipeline oil exports to China have jumped by an enormous 43%. This represents a 750,000 bpd increase. In the same period, Russian crude oil exports from western Black and Baltic Sea ports have dropped by 19% to just 1.86 million bpd.

This shift in export trends has garnered its fair share of criticism, with some experts asserting that while Russia has secured a bigger slice of the fast-growing Chinese oil market, the country is hindering relations with Europe, its primary oil customer. As a result, European refiners could be forced to turn to other supply channels like the Middle East and the USA.

“The Middle East will have less medium-sour crudes going to Asia because of the growth in Russian volumes, so then they would push those barrels into Europe,” explains Alan Gelder, Vice President Refining, Chemicals and Oil markets, at Wood Mackenzie.

Chinese demand set to skyrocket

The downward trend could also cause issues within the tanker freight sector, which is currently experiencing a slump in the wake of OPEC's production cut deals.

Unsurprisingly, China hasn't shied away from its new role as the world's biggest oil buyer. The People's Republic recently launched a domestic market for trading futures contracts. While it is part of the Shanghai International Energy Exchange foreign traders are allowed to invest, a move that marked a first for China’s commodities markets.

The Chinese market shows no signs of slowing down, with the latest findings from state-owned China National Petroleum Corp.'s Economics and Technology Research Institute predicting that national oil demand will rise 4.6% year on year in 2018. With pipeline expansions on the horizon and Chinese exports on the rise, Russia is doing everything it can to capitalise on the boom. Whether this leaves Europe high and dry is yet to be seen.

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