Recent data shows the discount on Russian oil narrowing and exports increasing despite the G-7 price cap on Russian petroleum exports and U.S. sanctions.

According to Clearview Energy Partners, Russian crude prices over the last four weeks have averaged about six cents below the Brent crude price. That is far off the trading discount when the cap was first put in place. When the cap was fully phased in, in February 2023, Russian crude was selling at a 30% discount. A year ago, the discount was about 16%.

Ukraine allies, including the U.S., have banned the import of Russian crude, while a price cap imposed on Russian oil by the G7 countries, the European Union and Australia bans the use of Western maritime services such as insurance, flagging and transportation when tankers carry Russian oil priced at or above $60 a barrel to nations where a ban is not enforced.

In a recent report to clients, Clearview Energy Partners characterized the G-7 price cap on Russian petroleum exports to third countries as “increasingly loose.”

Kevin Book, managing director of research at Clearview Energy Partners, told CNBC that despite the G-7’s June and September calls for improving the price cap, and recent guidance urging parties to Russian petroleum transactions to better scrutinize cargoes, “a U.S. pinch on Russian petroleum seems unlikely until after the election.”

“A cap enforcement crackdown runs the risk of driving up crude prices,” he said. “Plus, using ‘secondary’ sanctions to enforce the cap could push reputable insurers out of the Russian crude game entirely, leaving the market to potentially insolvent stand-ins.”

Book explained that part of the narrowing of the discount is a result of Russian oil finding additional buyers, including India and China.

Record volumes of sanctioned Russian oil were carried by the “dark fleet” and known sanctioned tankers without known insurance over September, according to a recent report from Lloyd’s List.

The Lloyd’s List Intelligence unit analysis of data from energy cargo tracking firm Vortexa revealed that 69% of all crude shipped in September was carried on dark fleet tankers and 18% was carried on tankers owned by Russian government-controlled Sovcomflot. It is the most volume moved since tracking of the monthly dark fleet data began in mid-2022 (measured by deadweight capacity of vessels.) In May, 54% was recorded, the previous high.

Chinese and Indian oil traders, refiners, and port authorities were the drivers of this growth.

Lloyd’s List determines if a tanker is part of the dark fleet based on factors including if the ship is 15 years or older, is anonymously owned or has a corporate structure designed to conceal ownership, is handling sanctioned oil trade, and is using deceptive shipping practices. Its analysis showed a flurry of flag-hopping, where a vessel changes its country registration, as well as ownership and management changes amongst the vessels in the dark fleet to avoid detection.

The dark fleet data does not include Russia’s Sovcomflot or Iran’s National Iranian Tanker Co.

Its data revealed that 5% of all Russian oil in September was transported by 11 tankers, with nine of those vessels sanctioned by the UK or EU between July and September and owned by the Russian government-controlled tanker company Sovcomflot. The remaining vessels were sanctioned by the U.S. Office of Foreign Assets Control for breaching sanctions on Syrian and Iranian oil. Those vessels are the Eternal Peace and Nebulax.

Some of the Sovcomflot tankers that Lloyd’s List identified in its report were sanctioned by the UK or EU between July and September. Some tankers changed vessel names, reflagged the vessel’s origin to Barbados, or redomiciled registered ownership to Seychelles and changed their ship management to a newly incorporated UAE-based ship manager, Avebury Shipmanagement.

Greece-owned tankers have shipped 23% of oil from Russia in September, consistently over the last three months, according to Lloyd’s List. The majority of the UK- and EU-sanctioned tankers have already discharged their oil in China.

Andy Lipow, president of Lipow Oil Associates, said despite the price cap, some ship owners have decided that it was extremely profitable to have their vessels become part of the dark fleet and risk United States and EU sanctions.

“After all, Russian oil continues to be purchased by Chinese and Indian refiners with little repercussions from the U.S. or EU,” said Lipow.

A Treasury spokesperson told CNBC, “Two years since the price cap was implemented, it is unsurprising that Putin is still sinking money into building and maintaining a shadow fleet to escape the Coalition’s sanctions: that evasion costs the Kremlin, and diverts money that would otherwise be going to the battlefield. The Price Cap Coalition continues to engage with industry to ensure compliance with the price cap and to increase Putin’s costs of going outside it.”

The number of uninsured vessels carrying sanctioned oil also increased, according to Lloyd’s List, with some 201 of the 310 tankers tracked not having insurance with the 12 clubs that form the International Group of P&I Clubs. That represented 68% of the vessels when measured by deadweight, and the lowest number of tankers tracked with IG club insurance, surpassing 67% uninsured recorded in July and August.

Lipow said the oil market is pricing in a greater probability of a war between Iran and Israel that could impact supply.

“The biggest risk to the oil market is the closure of the Straits of Hormuz, and while unlikely, if it were to happen, oil prices would rise $30 per barrel,” he said. Despite the hostilities, oil prices remain under pressure, he said, as increased production from the U.S., Canada and Guyana adds to the supply picture while OPEC+ delays the restoration of its production cuts.

The increased use of dark fleet vessels comes with greater maritime safety and environmental risks.

Lloyd’s List warned in a recent note that shipping safety has become a “casualty of economic sanctions” with attempts to enhance sanctions policy leading to greater ranks of tankers determined to evade it.

Insurance giant Allianz said in May that dark fleet tankers had been linked to more than 50 accidents.

Lipow told CNBC if these vessels were to be involved in an accident that resulted in an oil spill, the owners — assuming they could be identified and found — would simply walk away, leaving the mess and subsequently the cleanup for someone else to do.

Crude oil futures fell more than 2% on Monday after a press briefing by China’s finance minister disappointed the market.

Traders have been banking on more robust stimulus in China to boost the world’s second-largest economy. Soft demand in the world’s largest crude importer has weighed on the market for months.

“China’s monetary stimulus measures failed to stimulate and the weekend’s pledge from the finance ministry to borrow more was long on cliches and phrases but short on reassuring and convincing details,” Tamas Varga, analyst at oil broker PVM, told clients in a note.

Here are Monday’s energy prices:

• West Texas Intermediate November contract: $73.93 per barrel, down $1.63, or 2.16%. Year to date, U.S. crude oil has gained about 3%.
• Brent December contract: $77.44 per barrel, down $1.60, or 2.02%. Year to date, the global benchmark is little changed.
• RBOB Gasoline November contract: $2.1044 per gallon, down 2.19%. Year to date, gasoline is little changed.
• Natural Gas November contract: $2.572 per thousand cubic feet, down 2.28%. Year to date, gas is ahead more than 2%.

The market, meanwhile, continues to monitor the Middle East in anticipation of a retaliatory strike by Israel against Iran. U.S. officials told NBC News that Israel has narrowed down the targets it plans to hit. These include military and energy infrastructure, the officials told NBC.

GREENPORT, N.Y. – Roughly 35 miles off the east coast of Montauk, New York, 12 turbines gently spin in the wind at Orsted’s newly developed South Fork Wind farm. The project, which connected to the grid earlier this year, is the first commercial-scale offshore wind farm in the U.S., providing enough power for 70,000 homes annually.

It’s a needed bright spot for the U.S. offshore wind industry, which has faced a number of challenges getting off the ground. Rising interest rates and supply chain snags have changed project economics, forcing some developers to return to the market in search of higher contracted prices. Other projects have been canceled entirely.

Soren Lassen, head of offshore wind research at Wood Mackenzie, said the U.S. offshore wind industry is going through a needed readjustment, and that while the long-term outlook remains intact, progress has been pushed out. South Fork Wind offers tangible evidence that wind projects can work.

South Fork Wind was not without opposition. The waters off the Long Island coast have long been a place for recreational and commercial fisherman alike, some of whom opposed the project. Residents in Wainscott – the summer community where the cable comes ashore – also fought it. This led to Orsted adding extra space between each turbine so that the area remains open both to transit by pleasure and fishing boats, and the company buried the onshore cable beneath the beach and local roads.

Denmark-based Orsted is not new to the area. The company developed the five-turbine Block Island Wind Farm, which is northwest of South Fork Wind, in 2016. And northeast of South Fork Wind sits Revolution Wind – a 65-turbine project that Orsted broke ground on in 2023. In July, Orsted began construction on Sunrise Wind, which is also in federal waters off the New York coast.

Offshore wind projects are long-term investments, with work starting years before a single foundation is even drilled into the seabed. Securing the necessary permits is a lengthy process.

The Bureau of Ocean Energy Management first awarded the leases for South Fork Wind in 2013, which where acquired by Deepwater Wind. Orsted acquired the company in 2018 and partnered with Eversource Energy to start building the project. Onshore construction began in February 2022, with offshore construction following in 2023. In September, Skyborn Renewables, a Global Infrastructure Partners portfolio company, acquired Eversource’s 50% stake in both South Fork Wind and Revolution Wind.  

Offshore wind developers typically use power purchase agreements, which are signed ahead of construction. Put simply, it’s a long-term agreement between the owner and a third party who agrees to pay a specific price for the power – oftentimes for 20 years or more. At South Fork Wind, the power is being sold to Long Island Power Authority.

While this model provides long-term certainty, it can also be a huge obstacle if project costs balloon. Orsted is developing Revolution Wind and Sunrise Wind, but last year it walked away from Ocean Wind 1 and 2, which were slated to be built off the coast of Atlantic City, New Jersey.

“Macroeconomic factors have changed dramatically over a short period of time, with high inflation, rising interest rates, and supply chain bottlenecks impacting our long-term capital investments,” David Hardy, CEO Americas at Ørsted, said in October 2023. “As a result, we have no choice but to cease development of Ocean Wind 1 and Ocean Wind 2.”

In May, Orsted agreed to pay New Jersey a $125 million settlement.

The financial problems are not unique to Orsted. Equinor and BP ended a joint venture to develop a project in waters off the coast of New York in January. Equinor took sole ownership of the project and re-entered the market in search of better prices – securing a deal for Empire Wind 1, but not for Empire Wind 2, which remains on pause.

But some of those supply chain constraints are beginning to ease as more and more projects get off the ground. Dominion Energy is building the first Jones Act-compliant turbine installation ship in Brownsville, Texas, which will be used to transport supplies to its Coastal Virginia Offshore Wind project. Once the project is completed, the ship will be contracted out to other companies.

Vineyard Wind, off the coast of Martha’s Vineyard and Nantucket, Massachusetts, is the only other commercial-scale offshore wind project currently powering homes. Developer Avangrid had to pause construction over the summer after a blade broke off and fell into the ocean, with parts ultimately washing ashore on Nantucket beaches. GE Vernova, which made the blade, called it a “manufacturing deviation” related to “insufficient bonding” in the blade.

Two other projects – Block Island Wind Farm and Dominion’s two-turbine Coastal Virginia Offshore Wind Pilot Project – are operational, although they are much smaller, powering 17,000 and 3,000 homes, respectively.

The U.S. does have 58 gigawatts of capacity under development, according to American Clean Power, but some of those projects won’t come online for years, and there is no guarantee all of them will be built. The industry group estimates that $65 billion will be invested in offshore wind by 2030, supporting 56,000 jobs – up from 1,000 today.

“There are cycles in everything, and now we’re going through a negative cycle,” said Wood Mackenzie’s Lassen, in an interview. “That means that what is now driving the adjustments to price are, instead of success, failures.”

But Lassen is encouraged projects are pushing forward.

“The positive thing is that then there is some readjustment,” he said. “That means the sector is not disappearing. It’s bouncing back, but it is different.”