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Putin attempts to lower oil price cap as global energy market rifts

BusinessEconomyPutin attempts to lower oil price cap as global energy market rifts

Russia announces oil export embargo on countries following G-7 price range According to analysts, this is the latest sign that we have entered a new era for global energy markets.

But they also note that this is unlikely to have a short-term impact on oil prices, as markets take cues from data and concrete actions rather than words.

The price cap was introduced on 5 December and requires traders using sea routes, Western services such as insurance and financing to pay no more than $60 a barrel for offshore Russian oil. Ural crude is currently trading around $50 a barrel, according to Finnish refining firm Neste.

Decree of President Vladimir Putin said on Tuesday That from February 1 it would block crude oil and oil products for five months to any country that followed the cap, with a separate ban on refined oil products in the coming period.

S&P Global Vice Chairman Dan Yergin told “CNBC Special: Taking Stock 2023” on Tuesday that despite doubts over the program working, leaders found a way to keep oil flowing to the market while reducing Russian oil revenues Was.

But as a result, he said, we now have a “divided, more politically charged oil market”.

“For the last 30 years, since the collapse of the Soviet Union, we had a global market in which oil shifted pretty much based on economics, the exceptions being Iran and Venezuela.”

“But now we have a divided oil market in which Russian oil can no longer go to its biggest market, which is Europe, and the markets are divided and oil is now flowing east.”

Next cycle in oil market will be 'very strong': RBC Capital Markets

Following Russia’s unprovoked invasion of Ukraine in February, European countries are scrambling to find alternative sources of oil and gas and new energy security solutions. The European Union Received 14.4% of its petroleum oils from Russia in the third quarter of 2022, down 10.5 percentage points year-on-year as it increased imports from the US, Norway, Saudi Arabia and Iraq.

On Wednesday, a German government spokesman told Reuters that Moscow’s ban would have “no practical significance” for its economy, which is Europe’s biggest.

Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdowne, said the restrictions would “further exacerbate concerns around supply.” He told CNBC by email that crude prices are likely to remain high as China’s reopening increases oil demand.

However, she added: “To some extent, the price of the export ban will have already been set – Russia conveniently exerting pressure on countries that implement wasteful policies is not a new or unexpected tactic.” The price shock we’ve seen today is not as bad as it could have been and is likely to at least partially calm down in the coming weeks.”

Bill Weatherburn, commodities economist at Capital Economics, agreed that the immediate market impact would be limited because the move has been threatened by Russia for some time.

He also said that this would be the case because the US and Europe have already placed restrictions on the import of Russian marine crude oil; And with Ural crude still trading below $60, India and China can continue to import without a drop in the cap.

boom stage

Bob McNally of Rapidan Energy Group told CNBC “Squawk Box Asia“The EU embargo on Russian marine oil, the oil price cap and Russia’s export ban will be the most important factors affecting supply next year, and presented a “completely new” scenario.

He expects continued volatility in the oil markets through 2023 and beyond. Brent crude oil futures are currently trading around $84 a barrel, where they started the year, but have meanwhile been on a roller coaster, reaching close to $140 a barrel in intraday trading in March and in June Soared above $120 a barrel.

McNally believes the market is ending a nearly seven-year bust phase, which was characterized by oversupply, and is on the foothills of a new multi-year boom phase, which will see stronger demand than expected. The game will play out amid larger geopolitical and macroeconomic uncertainties, and OPEC+ will struggle to balance the market, he added.

Energy consultancy says 2023 will probably be a 'very volatile' year for the oil market

Russia remains the world’s largest oil exporter for crude and refined products combinedThe ramifications of its new ban could be huge.

But for now, McNally argued, there is a “boy who cried wolf” mentality in the markets, after warnings that Russian supply cuts would be cut in March 2022 pushed prices up but did not materialize.

“The market is in a slightly complacent mood regarding Russia, saying we’ll believe it when we see it,” McNealy said.

Russian marine crude exports are down about 24% month-on-month in December – “so it’s starting to happen, but the market will wait until it sees it in prices and before reacting to that,” They said.

Correction: This article has been updated to correct the date Putin’s decree was announced and the name of the CNBC show Dan Yergin as it appeared.


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