The Black Market For Oil Is Booming

Authored by Tsvetana Paraskova via OilPrice.com,

• Sanctions on key oil exporters have given rise to a lucrative black market for crude.

• The EU embargo on Russian crude oil imports and the price cap on Russian crude are set to further increase illicit shipments of oil.

• Russia is already thought to be amassing a “dark fleet” of tankers to ship its oil outside the price cap regime.

The sanctions on the oil exports of Venezuela and Iran, and now Russia, have given rise to a lucrative under-the-radar oil trade in which less scrupulous vessel owners, shipping firms, and traders continue to sell sanctioned oil to those willing to take the risk to buy it.

The EU embargo on Russian crude oil imports and the price cap on Russian crude – in force since December 5 – are set to further increase illicit shipments of oil to countries outside the EU and the G7 that haven’t joined the so-called Price Cap Coalition.  

Russia is already thought to be amassing a “dark fleet” of tankers to ship its oil outside the price cap regime and it has the playbooks of Iran and Venezuela to take a leaf out of and continue exporting large volumes of its crude and products. Russia could be using tried-and-tested tactics of labeling the oil as sourced from elsewhere, turning off tanker transponders, and even falsifying the positions of tankers via the Automatic Identification System (AIS) data to hide activity taking place hundreds of miles away from the false positioning data.

By using various spoofing tactics, producers and sellers of sanctioned oil still get to place their products with buyers who are happy to get heavily discounted crude.

But not all buyers, especially those in jurisdictions with strict controls and checks such as the U.S., are tempted to discard concerns and red flags about a cargo’s origin. Other buyers, especially independent Chinese refiners, are unfazed as their priority is to buy low-priced crude and make good profits refining it. China, the world’s top oil importer, continues to buy Iranian and Venezuelan crude, often masked as crude from Malaysia or Oman, various analysis and investigative reports have found over the past few years.

Outside China, buyers are wary of coming under sanctions and generally look to avoid mysterious crudes of suspicious origin.

One such recent case was an offer to buyers in the Houston area, the heart of the U.S. Gulf Coast refining industry. Trader Jonathan Plemel of Sidewalks Holdings has recently offered heavy crude documented as coming from Mexico, which, however, was being offered at the massive discount of $30 per barrel to the U.S. benchmark. Potential buyers passed on the offer because, as cheap and alluring as it looked like, they were concerned about the origin, doubting it was really from Mexico, Bloomberg reported this week, citing Plemel and other traders in the Houston area who have been approached with similarly attractive offers in the past year. 

Plemel told Bloomberg he couldn’t be certain of the origin of the crude and couldn’t answer many questions from prospective buyers 

“Could the oil potentially be from abandoned wells in Mexico? From Venezuela? I honestly can’t say.”

Venezuela is using false documents and tankers linked to Iran and known for carrying sanctioned Iranian crude in the past, a recent investigation by Reuters showed. Venezuela is selling oil to Chinese refiners, passing it off as Malaysian crude in documents, the investigation showed.

Malaysian waters are also notorious for ship-to-ship transfers and mixing of crude to hide the true origin of Iranian and Venezuelan oil. This year, Chinese customs data have at times shown so many imports from Malaysia that analysts and observers believe that China continues to import sanctioned oil passed off as coming from Oman or Malaysia.

Last month, China’s independent refiners imported record volumes of Iranian crude passed off as coming from Malaysia, Oman, or elsewhere, according to Vortexa tanker tracking data cited by Reuters.

Russia will also increasingly resort to sanction-evading practices such as masking its crude or deceiving positioning data, analysts say. Russia has already amassed a “shadow fleet” of tankers to ship its crude outside the price cap, and is copying some of the techniques used by Iran and Venezuela, which are on the list of Moscow’s “friendly” countries.

Tankers carrying Venezuelan crude have been found to falsify their positions over the past year, and this summer, a Russia-flagged tanker in the Mediterranean was caught falsifying its AIS, research by Global Fishing Watch and SkyTruth showed this week. 

The investigation into the movements of the Russian tanker Kapitan Schemilkin showed that the vessel altered its signal to show – falsely – that it was circling offshore Greece, while in reality, the ship traveled to locations near Malta and Cyprus. 

“It would prove to be the first detection ever of a Russian-flagged tanker broadcasting false coordinates—and it may be the first of many,” SkyTruth said.