Major energy consumers are boycotting Russian crude after Moscow’s invasion of Ukraine in moves that helped push oil prices above $113 a barrel on Wednesday.
Opec’s continued opposition to calls to increase oil production added to upward pressure on prices, after the group said it was sticking to a plan agreed last year to only gradually reverse the cuts. output reductions related to the pandemic.
Demand for Russian oil has been slumping since the attack on Ukraine began as refiners, banks and shipowners shunned the country’s vast commodity market. Energy Aspects, a consulting firm, said 70% of Russian crude was “struggling to find buyers”.
The energy market is largely unaffected by sanctions implemented by the US, EU and UK on Russia’s financial sector, but typical buyers are effectively sanctioning themselves, starting a new one. race to secure an alternative supply in an already tight market.
“Most of the big companies in Europe don’t touch Russian oil, and only a few European refineries and trading companies are still in the market, but with skyrocketing freight rates and war insurance premiums. Competition is significantly complicating transactions,” Energy Aspects said. “Some ship owners are said to be reluctant to book from the Baltic or Black Sea due to lack of war insurance.”
Despite the disruption to Russian exports, the Opec+ alliance, which includes Russia, said it would not expand a plan agreed last July to increase monthly output by 400,000 bpd. day. As oil prices have risen since August to an eight-year high, the United States and other major oil consumers have repeatedly called for the cartel to increase output more quickly to help ease inflation.
Opec+ said the most recent rally was due to “current geopolitical developments” rather than changes in market fundamentals, confirming that it will continue with its current plan. at in April.
Brent crude, the international oil index, rose nearly 8% to above $113 a barrel on Wednesday.
In a sign that commodity pressures are not limited to oil, European natural gas prices jumped 50% on Wednesday to an all-time high of €185/megawatt-hour.
German Economy Minister Robert Habeck on Wednesday said the worst-case scenario “has not materialized yet” and Russia is still sending gas. But he added that the country must prepare and may have to keep coal-fired power plants back up and running. Russia supplies about 40% of Europe’s gas.
Russia is the world’s third-largest oil producer after the United States and Saudi Arabia, and it typically exports about 7.5 million bpd as well as other energy products. Europe is Russia’s biggest supplier of crude, with about 53% of it ending up there, according to ING. Asia is another significant buyer, with 39% going into the region.
Russia’s top Urals crude is a staple of refineries in Northwestern Europe and the Mediterranean. Buyers include Germany, Italy, the Netherlands, Poland, Finland, Lithuania, Greece, Romania, Turkey and Bulgaria, according to S&P Global Platts, a commodity price reporting agency.
However, some European refineries, including Finland’s Nestlé and Sweden’s Preem, are turning away from Russian products and looking for supplies elsewhere. There are also reports of Indian refiners asking traders to source non-Russian supplies.
The Urals were trading at a discount of more than $18 a barrel on Wednesday against physical Brent in Northwestern Europe, a record in the post-Soviet era.
“The oil price differential is clearly reflecting Russia’s unwillingness to take on crude and continues to be at risk of being applied,” said Shin Kim, head of oil supply and production analysis at S&P. additional sanctions may have an indirect or direct impact on the purchase or supply of oil.”
Michael Tran, an analyst at RBC Capital Markets, said traders are having a hard time getting letters of credit – bank documents used on behalf of buyers to secure payments to sellers – to buy oil. of Russia.
“This is likely to still happen as potential buyers struggle to secure guarantees from banks,” he said. “The rate of tankers is [soaring] as consuming countries scramble to secure crates of material from elsewhere. “
The United States and other major energy consumers on Tuesday agreed to release 60 million barrels of oil from their emergency reserves to address concerns about disruptions to Russian supplies.
However, traders and analysts said the move was far below the level needed to calm the market. “As a one-time crude release, it is constrained by the unusual level of Russian export disruptions,” said Ehsan Khoman, head of emerging markets research at MUFG.
“The market’s severely depleted inventories and diminishing spare capacity in the face of a record long unresolved deficit have finally left a lever to rebalance the market. oil – that’s demand destruction.”
Opec and its allies, including Russia, will meet late Wednesday to discuss production levels. Despite the turmoil in the oil market, the cartel is expected to stick with its plan to increase production by 400,000 bpd in April. Other Russia-centric commodities have also been fueled by the conflict in Ukraine with aluminum trading at a record high on Wednesday and grain prices rising.