Russia Tried to Sell a Huge Slug of Oil. Nobody Wanted It.

But exports hit a snag in recent days when
Rosneft
Oil Co. struggled to find buyers for enough oil to fill a fleet of tankers, traders familiar with the sale said. The producer, in which the government owns a large minority stake, had invited companies to bid for the oil last week, according to traders and a document seen by The Wall Street Journal.

A Rosneft spokesman had no immediate comment.

The problems with the sale give an early indication that European sanctions targeting Rosneft, and due to kick in on May 15, are starting to disrupt Russia’s ability to move crude from oil fields to overseas buyers.

The sanctions are less stringent than a full ban on Russian imports. Many expect Europe eventually to adopt a phased outright ban on bringing in Russian oil -an embargo promoted by newly re-elected French President

Emmanuel Macron
but resisted by Germany and Hungary, among other members.

But sanctions already in place, laid out by the EU in mid-March, and replicated by Switzerland, will ban companies from reselling Rosneft oil outside of Europe. This includes sales into the big Asian market, especially India, which has soaked up some of the Russian oil demand since Moscow invaded Ukraine.

Traders will still be able to bring Rosneft crude and refined products into the EU and Switzerland, which were exempted in order not to worsen a shortage of diesel and other fuels. But many companies in Europe are rapidly finding non-Russian sources of oil. The sanctions also target
Transneft,
the sprawling state pipeline system that carries oil to ports, creating an additional hurdle to handling Russian fuel.

If Rosneft keeps struggling to sell, it would represent a further shock for an economy already locked out of much of Western finance and commerce. The company says it is Russia’s biggest taxpayer, contributing a fifth of budget revenue. In total, Russia’s oil and gas sales made up 45% of the federal budget in 2021, according to the International Energy Agency.

“If they can’t sell, they’ll have to start shutting down,” said

Adi Imsirovic,
senior research fellow at the Oxford Institute for Energy Studies and former head of oil trading at a subsidiary of Gazprom PJSC.

Rosneft, run by longtime Putin ally

Igor Sechin,

last week invited bids for about 5.1 million metric tons of Urals–or about 38 million barrels, enough to fill 19 large tankers–according to the traders and document. It asked for payment in rubles, an unusual twist, and said the oil would be loaded onto tankers at ports in the Baltic and Black Seas in May and June. Smaller volumes of other kinds of crude–including Siberian Light, Espo and Sokol–were also on offer.

Reuters earlier reported about Rosneft’s inability to sell the oil.

Rosneft focuses on drilling for oil and gas, and refining crude into usable fuels. It has long outsourced most of the actual selling of the stuff to a handful of traders including Trafigura Group Pte. Ltd., Vitol and
Glencore PLC,
which in turn shipped the oil to buyers around the world.

The traders are however retreating from the Russian market before the EU sanctions kick in. Vitol, the world’s biggest independent oil trader and which has a three-decade presence in Moscow, expects to stop trading Russian oil by the end of the year, people familiar with the decision said.

Rosneft’s tender was an attempt to export crude that trading companies were no longer willing to handle, people familiar with the sale said.

Unlike the U.S., Russia doesn’t have much space to store oil, so dwindling demand quickly backs up through the supply chain and prompts producers to throttle back output. Once wells are turned off, they can be hard to turn back on to their previous capacity.

Production has already fallen since the Feb. 24 invasion, although the scale of the losses is hard to gauge because Moscow is limiting the release of data on a swath of sectors. Rosneft and smaller private producers will encounter longer-term problems stemming from sanctions on sales of Western parts and technology to Russia, analysts said.

In a sign that refiners outside Russia are hunting for alternative suppliers, the country’s flagship Urals grade of crude is trading at roughly $35 a barrel below the price of international benchmark Brent, said

Tamas Varga,
an analyst at brokerage PVM Oil Associates. Before the war, the two kinds of crude traded within a few dollars of each other.

Write to Joe Wallace at joe.wallace@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com