China and India have halted purchases of Russian oil following sanctions imposed on Russia's shadow fleet.

The sale of Russian oil to Asia for March deliveries has come to a halt.

Source. This was reported by Reuters citing information from traders and vessel movement data.

The reason for this is a severe shortage of tankers after new U.S. measures have removed over 180 vessels from the shadow fleet, while the freight costs for the tankers not under sanctions have skyrocketed (by several million dollars).

As a result, the Russian Far Eastern grade ESPO has become too expensive (the premium to Brent for delivery on board is $3-5 per barrel, according to three traders).

Additionally, market participants are hesitant to enter into new agreements as sanctions have affected not only tankers but also companies like Gazprom Neft, Surgutneftegas, and dozens of oil traders.

According to the consulting firm FGE, the ban imposed in early January by the Chinese port operator Shandong Port Group on accepting sanctioned vessels, along with the subsequent "farewell" sanctions from the Biden administration on January 10, will likely lead to a loss of supplies to refiners in Shandong province of up to 1 million barrels per day in the near future. This region has many independent refineries that have actively purchased ESPO oil in recent years.

The import of Russian Far Eastern oil to China is expected to remain low in the coming weeks after falling last week to a six-month low of 717,000 barrels per day, according to Xu Muyu, a senior analyst at Kpler.

In India, refineries are still accepting Russian oil loaded before January 10, but this will only last until the end of the transition period on February 27.

As Vetsa Ramakrishna Gupta, CFO of one of India's largest state-owned oil companies Bharat Petroleum, told Reuters last week, oil traders have not made any offers for oil deliveries from Russia in March.

“Traders are asking us to wait. We are waiting for offers. We do not expect the same volume of shipments as we received in December and January,” he noted.

Typically, traders submit their offers by the 15th of the month to commence loading for the following month’s orders; after that, the oil is delivered to the buyer. Bharat Petroleum typically received 16-17 shipments from Russia per month (which accounted for 35% of its needs), but in January, three fewer tankers arrived. The company anticipates further reductions in February and March.

The leader in the refining sector, Indian Oil Corporation, has begun searching for alternatives and purchased 6 million barrels of American and African oil in a tender – in addition to the 10 million bought earlier this month.

In place of Russian oil, Asian countries are sourcing oil from Kazakhstan. In February, companies in the region will receive nearly 400,000 barrels per day from the North Sea and Kazakhstan, Bloomberg reports based on vessel movement data heading to Asia.

One Chinese refinery, which had constantly imported Russian ESPO, has purchased Kazakh oil for the first time in many years, traders told the agency.