Russia is the second largest oil exporter in the world after Saudi Arabia and the second largest supplier to the European Union. On December 27, Moscow announced that from February 1, 2023, it would no longer sell crude oil to those applying the $60 price cap agreed by the G7 (plus Australia), which was agreed on December 5, 2022 along with the EU -Embargo introduced, crude oil is transported by ship. How much crude oil is the EU losing? How Much Crude Oil Is Russia Selling? And at what real price?
No more Russian crude: In Italy it’s worth 500,000 barrels a day
According to the International Energy Forum, the embargo will result in the countries of the European Union consuming at least three million fewer barrels every day. Italy in a very special situation. With the EU sanction, our country can no longer import crude oil by ship from Russia and there is no pipeline, so it is virtually impossible to buy crude oil from Moscow, even below the price cap. But until a month ago, Russian crude oil was consumed a lot by ship, since our country’s largest refinery, Isab di Priolo (Syracuse), is owned by Russia’s Lukoil (which alone supplies 22% of total annual product needs). from refining such as fuel, diesel, gasoline) bought crude oil produced by the Russian parent company, claiming that due to the sanctions it had no credit lines to buy raw materials from other producers. So if we bought an average of 120,000 barrels of oil per day from Russia in 2021, we reached almost 500,000 barrels in August.
Russian barrel at 65 dollars
The price of a barrel of Russian oil (Ural crude) is lower than Brent traded on the London market, and the gap has widened over the last year: Russian crude is currently around $30 less, at around $65 a barrel, just above the cap, indicating a limited short-term impact of this measure. However, according to some observers, Putin is reportedly selling crude oil at a price below the ceiling, even under $50, reaching as much as $43 in December, according to the latest data from the International Energy Agency. According to Russian President Vladimir Putin, the Russian economy will not suffer from price caps, since the price at which Moscow sells these raw materials (gas, but also oil) is already slightly lower, or in any case in line with the price caps. There is no foreseeable damage to Russia, our economy or industry. We sell approximately at the prices that have been defined as a limit.
Production of Russian crude oil
The question is whether oil and gas price caps will work. Russia’s oil supply – which the IEA said rose by 270,000 barrels a day to 8.1 million barrels a day in November 2022 – hasn’t been particularly weakened by the sanctions, but will be lower next year. In 2023, Moscow will produce at least 490-500 million tons of oil, but Deputy Prime Minister Alexander Novak has not ruled out that there are downside risks to production in certain periods and it is possible that the decline in production will reach 7-8%. . Again, a lot will depend on the logistics.
Declining exports
What happened after the embargo and price cap? Exports of Russia’s ESPO oil from the Pacific port of Kozmino fell 54% to 1.6 million barrels a day in the first week after the western oil price cap was enforced. And according to Bloomberg, all Russian crude oil shipments by sea collapsed in the first full week of G7 sanctions. However, the decline could be due to logistics and shipping issues. As the press agency said, part of the collapse was linked to work that has now been completed at one Baltic Sea port, while many other ports also saw week-to-week declines. Maintenance at the key port of Primorsk has reduced shipments to just three loads in the week ended December 16, compared to a more normal weekly load rate of around eight. Volumes in the Baltic Sea are expected to recover once the work is complete, but problems in the east may take longer to resolve. In addition, it must be taken into account that the currents also depend on the weather conditions.
The New Geography of Oil
Logistics aside, we are witnessing a shift in the geography of Russian oil moving east, that is, to Asia. According to EU leaders, 90% of Russian oil exports to Europe will be stopped by the end of 2022 in protest against the Russian offensive in Ukraine. The latest data on oil consumption – writes the IEA in the oil market report of December 2022 – have surprised on the upside. This was particularly evident in non-OECD regions including China, India and the Middle East. The Kremlin – explained Giacomo Calef, country manager of NS Partners – still manages to export most of its crude oil to China, India and Indonesia. The problem for Russia is to understand whether China, India and Turkey will continue to buy more Russian oil, or whether, as has been evident in recent weeks, purchases will slow amid increased demand following the invasion of Ukraine.