Russian oil exports hold up despite impending EU ban
- Russian crude oil exports, including to the European Union, were largely unchanged last month
Over 1 million barrels of Russian oil exports a day are set to be obstructed by Western sanctions that are expected to come into force within weeks, the International Energy Agency said Tuesday, and Moscow will struggle to redirect shipments elsewhere threatening to further tighten global energy markets.
In a monthly report Tuesday, the Paris-based agency said Russian crude oil exports, including to the European Union were largely unchanged last month, despite the prospect of an imminent EU ban on Russian oil imports and a separate plan to cap prices for Russian crude oil sales.
Russia’s total oil exports rose by 165,000 barrels a day in October to 7.7 million barrels a day. Russian exports to the EU were 1.5 million barrels a day, of which 1.1 million barrels a day will be halted when the bloc’s ban comes into effect early next month, the IEA said.
It was unclear how much of those supplies Russia would be able to redirect to customers elsewhere in the world, the IEA said. India, China and Turkey have snapped up discounted Russian crude shipments but buying from those nations has stabilized in recent months while the volume would be too large for the remaining nations to absorb, the agency said.
The oil market is bracing for some of the harshest Western sanctions yet on Russia’s key revenue stream: energy exports.
On Dec. 5, EU states will ban imports of Russian crude and prohibit their companies from financing or insuring Russian oil shipments. On the same day, a price cap plan led by the Group of Seven comes into force. The plan will allow Western companies to facilitate Russian oil trading only if the oil is sold below a certain level.
The price cap mechanism is an attempt to keep Russia’s global oil supplies flowing while undermining Moscow’s revenue. While no level has yet been set, U.S. officials have suggested a cap in the $60 a barrel range would give Russia an incentive to keep producing. Russia has said it won’t trade with any nations participating in the price cap.
The unprecedented measures, as well as lingering uncertainties about how some of the measures will work in practice, are prompting confusion about the scale of the impact and making it difficult for the energy industry to prepare.
A key unknown is whether buyers in countries that aren’t participating in the price cap—such as China or India—will be put off by the restrictions on shipping insurance, said Callum Macpherson, head of commodities at Investec. Many are already paying steep discounts for Russian oil, making it unclear if the cap would have any effect on their behavior, he said.
“I am caught between wondering whether this will all be just smoke and mirrors or whether we will get some very significant disruptions," he said.
The Organization of the Petroleum Exporting Countries said Monday that the incoming sanctions were one of many major uncertainties clouding the outlook for energy markets which also include Covid-19 outbreaks in China and slowing global economies.
Western sanctions on Russia—punishment for its invasion of Ukraine—have succeeded in undermining the country’s oil output but have largely failed at reducing Moscow’s income as higher oil prices mean it earns more money for fewer barrels. In October, Russia’s oil revenue rose $1.7 billion to $17.3 billion, the IEA said Tuesday.
The sudden halt to Russian oil flows also poses a risk for the European nations banning them. The continent’s economy has already suffered as Russia’s stranglehold over its natural gas supplies has sent energy bills surging. The ban also threatens to exacerbate a European diesel supply crisis, the IEA said.
Another side effect of the sanctions would likely be an increase in efforts by shipping companies transporting Russian oil to disguise their cargo’s origins, using so-called “dark" tankers with opaque ownership structures, the IEA said. 450,000 barrels worth of Russian oil shipments in October didn’t disclose their destination, up from 100,000 barrels a day in September, the IEA said.
The IEA’s warning comes as it predicts additional demand this year and next from China as the nation slowly eases its Covid-19 lockdown measures—though global demand growth will be sluggish as economies are expected to struggle.
The agency increased its 2022 global oil demand forecasts by 170,000 barrels a day to 99.8 million barrels a day. For 2023, the IEA raised its oil-demand forecasts by 130,000 barrels a day to 101.4 million barrels a day.
Russia’s declining oil output will drag on global oil supplies which will grow at an anemic rate next year, failing to keep pace with growing oil demand. The IEA said global oil supplies would rise to 100.7 million barrels a day in 2023, 100,000 barrels a day more than it was forecasting last month, but still short 700,000 barrels a day short of the world’s expected appetite for oil.
This story has been published from a wire agency feed without modifications to the text
