The oil pipelines that transport Russian crude oil to Hungary
According to French Economy Minister Bruno Le Maire, the EU will impose a full embargo on Russian oil within a few weeks. In a Kyiv Independent interview with TV channel Bfmtv, Le Maire added that he would help stop the flow of foreign exchange to Russia. Federico Fubini wrote in Corriere della Sera yesterday that for the first time an economy that accounts for almost 15% of world crude oil imports will try to hit the second largest exporter. Whatever the outcome, the consequences are bound to reverberate everywhere.
Brussels has been preparing for this scenario for several weeks with the orientation of the USA. A new package of sanctions in response to the invasion of Ukraine will also be funded from the commodity proceeds. For several days, the main Western companies have been reducing their purchases of crude oil and fuel from Moscow-controlled oil companies in order not to make a mistake in announcing EU sanctions. The procedure could be similar to the coal embargo decided two weeks ago, which provides for a four-month transition period.
A document to stop oil imports is to be tabled in Brussels on Wednesday. According to New York Times sources, it was decided to await the result of the French elections on April 24 to ensure that the impact on prices could not affect the presidential election. Brent returned above $110 a barrel last week after a brief dip below 100 in a multi-month bullish momentum. On the other hand, a total embargo by Brussels can deprive the Russian economy of up to $200 billion in revenue a year if we include the nifty product. At least temporarily, the blockade would take about 5% of world exports off the market, leaving the first economy on the planet hunting for other supplies for the rest of the world.
Brent’s trend over the past few months
Commodities expert Gianclaudio Torlizzi said the first result of the news was to undermine the effectiveness of the International Energy Agency’s decision to make 120 million barrels available from its emergency stockpiles of oil. This collective action, the largest in history, comes on top of the 62.7 million barrel release agreed in March. The recently announced release of 120 million barrels will consist of about 88 million barrels of crude oil and 32 million barrels of petroleum products.
The United States, Japan and Korea will mainly release unrefined crude oil. In contrast, most of the stockpiles provided in Europe will be made up of petroleum products, mainly due to the lowering of the storage requirements imposed on the industry. For Italy, the release will be equal to 5 million barrels of crude oil (of which 2.9 crude oil and the rest in refined products, ed.) in total on April 1st, in addition to the 2.04 already expected in March. The long-term prospects for the oil market therefore remain optimistic. Despite the increase in production, global inventories are expected to decrease in the fourth quarter of 2022 as the economy recovers, Torlizzi explains.
But the proposal at the Brussels table puts a predetermined cap on the price the European Union is willing to pay Russian producers for its oil. It should be lower than both the international market prices and the discount prices at which importers of Ural oil are now trading. But such a mechanism would be impossible to impose on a product that is largely transported freely by ship (only Germany, Austria, Hungary and Slovakia receive some of Russia’s crude oil via pipelines), Fubini explained in Corriere della Sera. Siberian producers could always divert their casks to the rest of the world, to countries that don’t apply European sanctions and are willing to pay a higher price. Only the United States, Britain and Canada practice a total embargo on Vladimir Putin’s black gold, but China, India, Latin America and African countries remain open.
The decline in Russian oil production has already fallen below 10 million barrels a day for the first time since July 2020 and is further driving oil prices higher. That is why the Biden administration has announced that it will resume the sale of leases for new oil wells and Gas exploration on public land. Washington also plans to increase corporate licensing fees for the first time in more than a century. Starting next week, 145,000 acres of public land in nine states will be available for concessions, Torlizzi adds.
The gap between jet fuel and Brent’s Wall Street price
The forthcoming criticism could affect the price of derivatives such as diesel and jet fuel, for which Russia is a major supplier worldwide. In particular, the Gasoline / Brent spread set a new record on April 14 and 15 at $30 a barrel. Torlizzi says that according to Platts’ findings, global diesel inventories were at their lowest in 2018. Before the conflict in Ukraine, Russia exported 700,000 barrels a day. Europe is particularly vulnerable as 50% of diesel imports come from Russia (277 million barrels in 2021). The European countries most dependent on Russian diesel include France (56.81 million barrels), Germany (38.30 million barrels), the UK (39.85 million barrels) and Turkey (30.80 million barrels ). The import of diesel from Italy in 2021 was just 8.41 million barrels, on par with the Netherlands and Belgium.
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