Exports of Russia’s flagship Urals crude blend from the Baltic Sea ports will
probably fall to around 5 million tonnes this month from 6 million tonnes in
November, thanks to an EU embargo on Russian oil and a Western price cap,
according to Reuters calculations. Some estimates have predicted it could fall as
low as 4.7 million tonnes.
The $60 per barrel price cap introduced by the European Union, G7 nations and
Australia allows non-EU countries to import seaborne Russian crude oil, but
prohibits shipping, insurance, and reinsurance companies from handling cargoes
of Russian crude unless it is sold for under $60.
Traders have reported to Reuters that Russia is struggling to fully redirect Urals
exports from Europe to other markets such as China and India India and is also
having a hard time finding enough suitable vessels.
Russia’s problems have been compounded by a shortage of non-western
tonnage, moderate demand for the grade in Asia, especially in China and a weak
export economy. Indeed, Reuters has reported that Russia’s pipeline
monopoly Transneft has been unable to fill some of the available loading slots
due to a lack of bids from producers while other slots were postponed or
canceled. Only China, India, Bulgaria, and Turkey are currently willing to buy
Urals with the blend now being sold to export markets at below overall
production cost including local levies.
It’s going to be interesting to see the long-term effects of the price-cap on
Europe’s and Russia’s energy sector.
Citi’s Global Head of Commodities Research Ed Morse has dismissed the price
cap, terming it as silly, impractical, and unlikely to work in tight gas markets
because gas markets are global and not bifurcated into individual countries,
meaning the forces of demand and supply are more likely to prevail in
determining gas prices.
As such, Morse says the price cap is likely to lead to gas shortages in Europe
especially during winter months when demand is high. Further, the commodity
analyst says that getting rid of the TTF natural gas benchmark is likely to cause
chaos when determining gas prices especially if other existing benchmarks lack
sufficient liquidity.