EU sanctions on Russian oil products could have a shocking effect

While the European Union (EU) embargo on Russian oil products is expected to take effect tomorrow, experts say these sanctions will have a more impactful effect on the EU, which imports almost half of its diesel needs from Russia, long term. run that sanctions on Russian crude, which came into force on December 5.

EU countries are preparing to apply a similar embargo on Russian crude oil imports, which came into force on December 5, on oil products from Russian refineries. On the same day, the application of maximum prices of the EU and G7 countries for these products will also enter into force.

PRICE CEILING ALSO STARTS

Under this application, which was agreed on Friday and is aimed at further increasing pressure on Moscow’s revenue stream, a price ceiling of $100 per barrel will apply to blue-chip Russian oil products such as diesel, and $45 per barrel. to products such as fuel oil (liquid fuel).

When the application of this maximum price comes into force, Western shipping and insurance companies will not be able to insure Russian oil products unless they are purchased at or below this limit, thus preventing the transport of these products.

EU Commission President Ursula von der Leyen, in her Twitter post after the announcement of the decision, stated that this decision taken with the G7 countries will reduce Russia’s revenue and ensure the stability of global energy markets. .

Western governments will also reconsider imposing a cap of $60 a barrel on Russian crude, which took effect on the same day on December 5. The practice, which was intended to restrict the international circulation of Russian crude oil sales, could not have the expected effect as current sales from Russia remained below this limit.

On the other hand, Russia has banned the sale of oil to countries and companies that comply with EU price restrictions from February 1. In this context, the supply of Russian crude and petroleum products will be prohibited “at all stages” if the sales contracts directly or indirectly comply with the terms of this practice. With the special permission of Russian President Vladimir Putin, exceptions can be made in the application, which will remain in effect for five months.

OIL MAY INCREASE 10-20 DOLLARS

Energy Intelligence Group oil markets economist Julien Mathonniere told Anadolu Agency (AA) that Russian crude oil was selling below $60 a barrel, but this was due to market conditions, not at the maximum price.

Mathonniere noted that the embargo and price caps on Russian oil products, which will take effect tomorrow, will have a more profound impact than the sanctions on Russian crude, which took effect on December 5, but that it is possible that this don’t happen right away. .

Stating that the EU and US were stockpiling enough product before the sanctions, and this delayed aftershocks from the sanctions for a while, Mathonniere said that while low-sulfur kerosene futures prices traded on Intercontinental Exchange (ICE) should have risen sometime before the sanctions came into effect, the current tight market conditions signaled it to be low.

Mathonniere said Europe will eventually need just over 1 million barrels a day of alternative product supply, almost half of which will be diesel.

Emphasizing that the product that will be most affected by the sanctions will be diesel, Mathonniere continued as follows:

“Europe’s imports from Russia consisted of approximately 500,000 barrels per day of ultra-low sulfur diesel (ULSD), which is already seen as the region’s weak point in terms of product supply. Last year, Russia supplied almost half of the EU-27’s diesel imports from the EU. This corresponds to around 10 percent of total EU diesel consumption. Given all this, Europe could face a diesel shortage. This means prolonged high prices and economic hardship for European drivers, businesses and the agricultural sector, putting all components of oil at risk of overvalued prices. There is a rumor that the EU will continue to buy some diesel products from Russia, as it does crude oil. There is even talk that some traders may try to re-export Russian diesel from non-EU countries to Europe.”

Mathonniere stated that Russian oil has become a disadvantage for many buyers in the market and therefore Russia prefers to continue production at high prices, adding: “Even after the embargo imposed by the EU on December 5 , Moscow managed to maintain the flow of exports at a high level. level thanks to high discounts. . However, oil production from Russia, which may find an outlet on the crude oil side, is expected to decline if it cannot find new buyers for petroleum products. The main reason for this is that, unlike crude oil, Russian oil product export capabilities are not sufficient to allow for new regulation.” he shared the knowledge of it.

Referring to the impact of sanctions on global oil prices, Mathonniere said that if there is a rise in prices, it will be due to an insufficient supply of diesel in Europe.

Pointing to a $10 to $20 per barrel rise in oil prices, Mathonniere said: “This will bring attention to the OPEC+ group. We expect a return of $90-$100 per barrel in the next 3-6 months, but at a much lower top price compared to 2022. The OPEC+ group may look to lower prices and control volatility, especially if they pull out of the market large amounts of Russian oil. he found the evaluation of it.

‘CAN EMBELLISH THE SUCCESS OF SANCTIONS’

Carole Nakhle, chief executive of British consultancy Crystol Energy, said the sanctions can only be considered successful if they “undermine” Russia’s revenue from these products and negatively affect its economic growth.

Recalling that the International Monetary Fund has revised upwards the growth expectation of the Russian economy, Nakhle stated that steps that cause sudden increases in oil prices should be avoided to prevent this undesirable outcome.

Noting that it is difficult to predict the possible effects of the new sanctions, but the negative effects of trading in crude oil and petroleum products will be seen due to their nature, Nakhle said: “Still, these sanctions will affect the diesel market more “. . It is impossible for some economies to function without diesel.” he performed the assessment of it.

Nakhle noted that the possible impact of Russia’s ban on the export of oil and oil products to countries that are party to the sanctions as a countermeasure on oil prices depends on whether supplies are diverted to other buyers. (AA)