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Ukraine conflict disrupts global oil shipping, fuels demand for oilfield services

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The months-long conflict in Ukraine has caused significant disruption to global oil shipping routes which lead to a spike in crude oil prices that boosted the global demand for oilfield services, the CEO of Dubai-based tanker operator and oil trader Oilmar told Al Arabiya English on Monday.

Weighing in on the impact the conflict has had on the global shipping sector, Oilmar CEO Yusif Mammadov said in an interview with Al Arabiya English that due to the sanctions imposed by Western powers on Russia, the sector has witnessed many changes.

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“A rise in upstream activity as crude prices surged above $100 a barrel this year has bolstered demand for oilfield services, including drilling wells, and buoyed prospects for a sector battered during the coronavirus pandemic-induced oil crash of 2020,” Mammadov explained.

“We are noticing an increase in drilling of proven reserves, as well as exploratory drilling throughout the world triggered by an increase in oil prices.”

This forced Russia to re-direct its volumes from Primorsk, Ust-Luga and Novorossiysk ports offloading to India and China, as the stems were offered at a great discount.

During the first quarter of 2022 and before the conflict in Ukraine – which began on February 24 – India imported REBCO at a rate of 40,000 barrels per day while China imported 750,000 barrels per day. India then ramped up the seaborne volume to 850,000 barrels per day after the conflict while China increased its import capacity to 1.1 million barrels per day.

“The volume of seaborne Russian Export Blend Crude Oil (REBCO or Urals) to Europe decreased but still represents a significant grade of crude oil in European refineries’ portfolios,” he said.

“Russia exported 190,000 metric tons per day from January until February 2022. During the period between March and July 2022, the volume of export made up 100,000 metric tons per day.”

The price of oil is largely driven by supply and demand and historically, extremely high oil prices were usually directly influenced by conflict or geopolitical tensions, especially when an oil-producing country, like Russia, is involved.

“Since February 2022 when conflict began, we actively started to research the market [to] forecast new demands in order to observe new potential shipping routes,” the CEO said.

“As a result of performed actions, Oilmar has concentrated its business in the areas of high demand, caused by [a] lack of supply due to conflict and sanctions.”

Oilmar currently delivers around 14 million barrels of crude oil globally per month on average.

“We are closely monitoring the situation on upcoming demands from the market,” he added.

Ukraine conflict reconfigured global oil market

The conflict significantly reconfigured the global oil market, with other suppliers stepping up to meet European demand as many European Union member states rushed to impose sanctions on Russia, marking one of the biggest supply-side shakeups in global oil trade in modern history.

“We see a clear pattern for the replacement of Russian-origin crude oil in Europe and the refineries source the crude oil from the Arabian Gulf, from countries like Saudi Arabia and Iraq, West Africa (Nigeria and Ghana) and the US Gulf,” Mammadov explained.

Suezmax refers to a class of medium-sized oil tankers which are larger than Aframax and smaller than VLCC. Aframax can carry 100,000 metric tons, Suezmax can take up between 150,000 to 180,000 metric tons and VLCC (supertankers) can take around 300,000 metric tons.

“The volumes from [the Arabian Gulf] are being transported by Suezmax due to the delivery time,” Mammadov added. Suezmax transports cargo via the Suez Canal instead of being loaded on VLCC and transported via the Cape of Good Hope in South Africa.

West Africa cargoes are being delivered on Suezmax and VLCC, whereas the US Gulf batches use all three.

“The US Gulf-Europe voyages… have become shorter compared to the past when cargoes loaded from US Gulf were mainly destined for China. For instance, US Gulf crude export to Europe in the second quarter hit a record of 3.3 million barrels per day.”

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