Russian seaborne crude exports have increased to levels not seen since early 2022. Despite this rise, the International Energy Agency (IEA) indicates a sharp decline in Russia’s overall oil exports in November due to disruptions in refinery operations.
Russian seaborne oil exports reached 4.24 million barrels per day last week, marking the highest since early 2022. Shipments increased by approximately 1 million barrels per day over two weeks, and the 4-week average rose to 3.68 million barrels per day, the highest since late October.
Inventory Challenges
A large portion of these shipments lacks buyers, leading to increased inventories stored in tankers. As per the IEA, inventories have grown by 213 million barrels since late August, an increase of over 2 million barrels per day.
In November, Russian oil exports fell below 7 million barrels per day for the first time since early 2022. Crude oil exports, including pipeline deliveries, decreased to 4.7 million barrels per day. Exports of oil products fell to 2.1 million barrels per day, likely due to Ukrainian drone attacks on Russian refineries reducing production and export of oil products.
We are seeing a significant increase in Russian seaborne crude exports, which have reached their highest point since early 2022. However, this headline number is misleading as a large portion of this oil appears to be unsold and stored on tankers. This suggests a potential disconnect between supply hitting the water and actual end-user demand.
This buildup of floating storage, which has increased by over 200 million barrels since August, points to a bearish sentiment for crude oil prices. This oil will eventually have to be sold, likely at a discount, putting downward pressure on benchmarks like Brent and WTI. We should consider positioning for stable or slightly lower crude prices in the coming weeks, perhaps by selling out-of-the-money call options.
Market Strategies
At the same time, Russia’s refined product exports, like diesel and gasoline, have fallen to their lowest levels since the beginning of 2022. This is a direct result of continued Ukrainian drone attacks on Russian refinery infrastructure. This creates a bullish case for refined product prices, as global supply tightens.
This divergence presents a clear opportunity in crack spreads, which represent the profitability of refining crude into products. The 3-2-1 crack spread has already widened to over $45 a barrel, a level we haven’t consistently seen since the market shocks of mid-2024. We should consider trades that go long on refined products like heating oil or gasoline futures while shorting crude oil futures.
The geopolitical risk from the ongoing refinery attacks introduces significant uncertainty and a high likelihood of price volatility. This environment is ideal for options traders who can profit from large price swings. We should look at buying straddles or strangles on key energy futures to capitalize on this expected turbulence.
Looking back, we saw a similar dynamic play out in late 2023 and early 2024, where disruptions to refinery output caused product prices to spike even as crude oil prices remained relatively contained. Historical data suggests these refinery margin expansions can be both sharp and profitable for those positioned correctly. Therefore, focusing on product-crude spreads rather than an outright directional bet on oil seems to be the most prudent strategy.
