Oil rises to $ 113 as European energy groups avoid Russian crude oil

Large energy consumers are boycotting Russian oil following Moscow’s invasion of Ukraine in actions that helped raise oil prices above $ 113 a barrel on Wednesday.

OPEC’s continued opposition to calls for increased oil production has added to the pressure to raise prices, after the group said it was sticking to a plan agreed last year to gradually reverse pandemic cuts.

Demand for Russian oil has plummeted since the attack on Ukraine began as refineries, banks and shipowners avoid the country’s vast commodity market. The consulting company Energy Aspects said that 70% of Russian oil is “working hard to find buyers.”

Energy markets have been largely spared sanctions by the United States, the European Union and the United Kingdom against Russia’s financial sector, but typical buyers are effectively self-sanctioning themselves by starting a race to secure alternative supplies in an already tight market.

“Most European large companies do not touch Russian oil and only a few European refineries and trading companies are still on the market, but high freight rates and military insurance premiums significantly complicate transactions,” Energy Aspects said. “Several shipowners are reportedly reluctant to make reservations from the Baltic or the Black Sea due to a lack of military insurance.

Despite the suspension of Russian exports, the OPEC + alliance, which includes Russia, has said it will not extend a plan agreed last July to increase monthly production by 400,000 barrels a day. As oil prices have risen since August, reaching an eight-year high, the United States and other major oil consumers have repeatedly called on the cartel to increase production faster to help ease inflation.

The latest rise in prices was caused by “current geopolitical events” and not by changes in market fundamentals, OPEC + said, confirming that it would continue with the current plan in April.

Brent crude, international oil, rose nearly 8 percent to more than $ 113 a barrel on Wednesday.

As a sign that pressure on raw materials is not limited to oil, European natural gas prices rose 50 percent on Wednesday to a record 185 euros per megawatt-hour.

German Economy Minister Robert Habek said on Wednesday that the worst-case scenario “has not yet materialized” and Russia is still sending gas. But he added that the country needs to be prepared and may need to maintain coal-fired power plants as a reserve. Russia supplies about 40 percent of European gas.

Russia is the world’s third-largest oil producer after the United States and Saudi Arabia, and typically exports about 7.5 million barrels a day, as well as other energy products. Europe is the largest home for Russian crude oil, with about 53 percent of it ending up there, according to ING. Asia is another significant buyer, with 39 percent going to the region.

Russia’s leading Urals oil is a staple for refineries in northwestern Europe and the Mediterranean. The buyers are Germany, Italy, the Netherlands, Poland, Finland, Lithuania, Greece, Romania, Turkey and Bulgaria, according to S&P Global Platts, a commodity price reporting agency.

However, a number of European refineries, including Finland’s Nestlé and Preem in Sweden, are abandoning Russian classes and seeking supplies elsewhere. There are also reports of Indian refineries asking traders to supply non-Russian supplies.

The Urals traded at a discount of more than $ 18 a barrel on Wednesday against the physical Brent in northwestern Europe, a record for the post-Soviet era.

“Differences in oil prices reflect a clear reluctance to take Russian oil and there is still a risk of new sanctions that could indirectly or directly affect oil purchases or supplies,” said Shin Kim, head of supply and production analysis. S&P oil.

Michael Tran, an analyst at RBC Capital Markets, said traders face difficulties in obtaining letters of credit – bank documents used on behalf of the buyer that act as a guarantee to pay the seller – to buy Russian oil.

“This is likely to remain the case as potential buyers struggle to secure guarantees from banks,” he said. “Tanker tariffs are [soaring] while consumer countries are struggling to provide physical barrels elsewhere.

The United States and other major energy-intensive countries agreed on Tuesday to release 60 million barrels of oil from their emergency stockpiles to address fears of disruptions to Russian supplies.

However, traders and analysts said the move was far below the levels needed to calm the market. “As a one-off crude oil spill, it is clogged by the sheer magnitude of Russian export disruptions,” said Ehsan Homan, head of MUFG’s emerging markets research.

“Critically depleted market stocks and declining levels of spare capacity in the face of record-breaking unresolved deficits ultimately leave a lever for rebalancing oil markets – destroying demand.

OPEC and its allies, including Russia, are due to meet later Wednesday to discuss production levels. Despite the turmoil in the oil markets, the cartel is expected to stick to its plan to increase production by 400,000 barrels per day in April. Other Russian-oriented goods were also boosted by the conflict in Ukraine, with aluminum trading at a record high on Wednesday and grain prices rising.