00:00How effective are these sanctions going to be and how worried are China and India going to be about the potential consequences if they continue to buy Russian oil?
00:10Good morning. So already we see that they are taking it seriously.
00:14Both China and India, we've seen official announcements.
00:17We've seen activity in the physical market with India, not only state refiners, but also independent refiners starting to buy other crudes rather than Russian crude.
00:28India has been importing 1.6 million barrels per day of Russian crude this year, and that is, of course, at risk.
00:36But what we have seen every time sanctions come out, and in January we had the Biden sanctions that went against Gazprom and Surtu Neftegas, is for a month we saw a pullback in Chinese purchases of Russian crude, and then China was back in the market.
00:56We also saw that what was officially deemed barrels of export from those companies suddenly became unknown.
01:04So this is where, you know, Rosneft and Lukoil export 2.7 million barrels per day of Russian crude.
01:12But is all of that going to be locked in? The market probably doesn't believe that.
01:16Okay. But at the same time, you know, you mentioned India importing.
01:21I think the number you said was about 1.4 million barrels a day of Russian oil.
01:25If they decide to... 1.6 million.
01:28Okay. So if they decide to stop buying Russian oil, they will have to find another supplier.
01:34Do you see that benefiting OPEC?
01:36Do you see that benefiting some of the Middle East producers out there?
01:39Absolutely. Because we need to replace sour crudes.
01:43And we have seen that already India started buying crude for December delivery.
01:49And basically, the refiners had already allocated everything they needed through December, and they were starting to show tenders for January delivery.
01:59So it shows that they are already trying to replace some of those barrels.
02:03In particular, Reliance has a contract with Rosneft to take 500,000 barrels per day of crude.
02:12So that already needs to start to be replaced.
02:15And I think the timing of this coming after OPEC has increasingly announced that they will be bringing back more oil to the market at a time when Russia is underproducing versus the higher quota.
02:28It shows immediately that Saudi, Mourban, you know, all of these sorts of barrels will be, and most importantly, Iraq will be benefiting from this.
02:39We've had the reopening of the pipeline from Kirkuk to Sehan, which goes directly to Turkey.
02:44And Turkey has been taking 400,000 barrels per day of Russian crude.
02:49Yeah, well, that was going to be my next question.
02:51A lot of focus the last 24 hours, a lot of commentary around Russia and China, understandably so.
02:57But Turkey still import about 60 percent of their oil needs from Russia as well.
03:02Why is there not more emphasis on Turkey and their, you know, appetite still to continue buying Russian oil despite being a NATO member?
03:13Yeah, well, Turkey is in the middle, right?
03:16And so they're not an EU member.
03:19They are a NATO member.
03:21They have been, you know, shifting their diet a little bit.
03:24And then you have also barrels coming into Turkey via the Caspian, which is mixed.
03:31It's blended Russian crude.
03:33So it's not purely Russian crude.
03:35In addition, Turkey has been cut off because of this pipeline coming from Kirkuk.
03:40So this is when we look at the timing of these sanctions.
03:44It's been a multi-prong approach.
03:46And the U.S. has really pushed Iraq to reopen that pipeline.
03:51It's now exporting around 180,000 barrels per day.
03:55So out of the 400, that's great.
03:57But it has the pipeline capacity to take 450.
04:00So I think this is very much directed in terms of replacing that appetite.
04:05There's also, you know, there aren't relationships within refineries and within trade deals that have been in existence.
04:15But those right now are very much being replaced.
04:19So Turkey is taking this very seriously.
04:21Yeah.
04:23Okay.
04:23Really interesting.
04:24Now, you know, I want to square up something else.
04:26You and I have spoken the last couple of weeks about your outlook for oil and the fact that you've pointed out that OECD inventories are not at super high levels yet.
04:35So one of the cases, I guess, for oil to be more supported.
04:39And yet at the same time, you know, we've published a report recently suggesting that, you know, the amount of floating oil right now is sitting at huge numbers.
04:49I mean, like something like 1 billion barrels a day are already on the water, which is just a huge amount.
04:56And I wonder whether you yourself have revised your outlook for oil based on the amount of floating storage there is.
05:04Well, there's a difference between what is floating storage and what is on the water.
05:08And part of this is, you know, we have U.S. refining maintenance going on right now, which means that we are seeing higher exports out of the U.S.
05:16We are finally getting all these pent-back barrels that were supposed to be coming from OPEC Plus.
05:23And we have renewed appetites, as we're seeing, for Brazilian crude coming right now because of these sanctions.
05:29So part of this, I would say, is normal because we haven't had that much in the way of crude flows.
05:36And when you look at the tanker market, it was at an absolute low in December going into the Trump election.
05:43Now we see this crude coming out.
05:44The question is, is it going to be put into floating storage?
05:48We've had congestion in Chinese ports, partly because of sanctions, particularly on the Rizal port in China by the U.S. Treasury.
06:01And that has slowed things down.
06:02But I still wouldn't define that as floating storage.
06:04So there's a lot of oil coming for delivery into China, probably going into strategic storage, as we've discussed before.
06:12But we don't have the product exports coming out of China that is suggesting that all of that crude is going to be refined and then sent out in the products to the rest of the world.
06:21I wouldn't put it yet at floating storage, except for these Russian barrels, which may really struggle to deliver.
06:28So those may be going into floating storage.
06:31Iranian oil could be going into floating storage.
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