Russian Oil’s Next Big Test: Trying to Sell 83 Million Barrels

(Bloomberg) -- With Russian oil increasingly under an embargo in all but name, the country is about to face its biggest hurdle since war broke out: the sale of of tens of millions of barrels of crude.

On Saturday, the first round of a giant tender for as much as 83 million barrels of the country's crude issued by oil giant Rosneft Oil Co. PJSC will close. The offer is for supplies of its flagship Urals grade from April to October.

Oil traders, refiners, governments and shipowners alike will all be keenly looking at the outcome to see exactly what impact current sanctions are having on Russia's seaborne flows.

Much of Europe's refining industry has shied away from dealing with Russian supplies, and the deal will be a litmus test of just how much long-term risk those still dealing with Russia are willing to take. Some traders said Rosneft may simply elect to cancel the tender given the current state of the market.

Currently, much of the trade in Russia's oil appears to be at a standstill. On Thursday, top trader Trafigura Group offered a cargo of Urals in northwest Europe at a record discount of more than $22 a barrel in a pricing window organized by S&P Global Platts. It found no bidders.

For the tender, bids were due to be submitted in late-January and remain valid until Saturday. The process is not public.

Rosneft did not respond to a written request for a comment sent via its website on Friday.

There are a litany of factors slowing the trade in Russia petroleum. Those include financial sanctions making it difficult for banks to process payments, reputational risks on the part of companies unwilling to deal with Russia, and difficulty finding tankers to load crude at Russian ports amid spiraling freight and insurance costs.

Consultant Energy Aspects said this week that it sees 70% of Russia crude oil exports currently frozen, but that it expects that volume to fall to 20% as the full extent of sanctions becomes clear.

Rosneft is the biggest equity holders of Urals. It owned about 139 million barrels of Urals for October-March period, accounting for 40% of total exports of the grade from three western ports during that period. Some of those supplies would likely have been sold by tender.