Russian seaborne crude exports have risen to levels not seen since early 2022. However, the International Energy Agency (IEA) reports a decline in Russia’s overall oil exports in November due to issues in refinery operations. Russian seaborne oil exports reached 4.24 million barrels per day last week, the highest since early 2022. Shipments increased by about 1 million barrels per day in just two weeks, with the 4-week average climbing to 3.68 million barrels per day, the highest since late October.

Inventory Challenges

Many of these shipments are going unsold, resulting in rising inventories in tankers. According to the IEA, inventories have increased by 213 million barrels since late August, which is over 2 million barrels per day. In November, Russian oil exports dropped below 7 million barrels per day for the first time since early 2022. Crude oil exports, including pipeline deliveries, fell to 4.7 million barrels per day. Exports of oil products also decreased to 2.1 million barrels per day, likely due to Ukrainian drone attacks on Russian refineries that have disrupted production. While Russian seaborne crude exports are rising and hitting their highest levels since early 2022, a lot of that oil has no buyers and is stuck in tankers. This signals a gap between what is being shipped and what customers actually need. The rise in floating storage—over 200 million barrels since August—suggests that crude oil prices may fall. This oil will eventually need to be sold, probably at lower prices, which could put pressure on benchmarks like Brent and WTI. It might be wise to prepare for stable or slightly lower crude prices in the upcoming weeks by selling out-of-the-money call options.

Market Strategies

At the same time, Russian exports of refined products, like diesel and gasoline, have hit their lowest rates since early 2022. This decline is mainly due to ongoing Ukrainian drone attacks on Russian refineries, which creates a bullish outlook for refined product prices as global supply tightens. This situation provides a clear opportunity in crack spreads, which gauge the profitability of turning crude oil into refined products. The 3-2-1 crack spread has widened to over $45 a barrel, a level that hasn’t been consistently reached since market shocks in mid-2024. Consider trades that involve going long on refined products like heating oil or gasoline futures while shorting crude oil futures. The geopolitical risk from attacks on refineries adds uncertainty and a high chance for price swings. This is an ideal market for options traders looking to benefit from large price fluctuations. We should explore buying straddles or strangles on key energy futures to take advantage of this expected volatility. In late 2023 and early 2024, we saw a similar situation where disruptions to refinery output caused product prices to spike, even as crude oil prices remained stable. Historical data shows that these refinery margin expansions can be sharp and profitable for those positioned correctly. Therefore, focusing on product-crude spreads rather than betting on a clear direction for oil seems to be the safest strategy. Create your live VT Markets account and start trading now.

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