Not Yellen to us per barrel
Russia has prepared a response to the imposed oil price ceiling by Western countries.
Russian President Vladimir Putin warned that on Monday-Tuesday, that is, December 26-27, he will sign a decree on retaliatory measures against the oil price ceiling established on December 5 by the G7 countries, the European Union and Australia. According to him, the damage from restrictive measures for the Russian economy and the fuel and energy complex "is not visible," the correspondent of The Moscow Post reports.
Russia will never agree to any price ceilings for its energy resources, this is a matter of principle - to prevent interference in market processes, said presidential spokesman Dmitry Peskov on the Russia-1 TV channel in the program Moscow. Kremlin. Putin.
"I do not exclude that in 2023 there will be risks of production decline in certain periods. Perhaps at the peak we will cut it by 7-8%. However, in general, we will achieve at least 490-500 million tons by year, "said Deputy Prime Minister Alexander Novak on December 25. The EU embargo on petroleum products may lead to a decrease in refining in the Russian Federation in 2023, but then these volumes will be replaced by an increase in oil exports.
By the end of 2022, oil production in Russia will increase by 2%, to 535 million tons.
Russia occupies a leading position in the export of energy resources. The Russian Federation accounts for about 22% of world oil exports and 20% of natural gas exports.
Ban, or "forehead" on your ceiling
Moscow is expected to ban the sale of oil, as well as petroleum products, to countries and legal entities that will demand compliance with the "price ceiling," which replaced the embargo on oil exports agreed by the European Union in May.
As you know, restrictions on Russian oil prices have been introduced to reduce Kremlin revenues. "The first goal is to limit the revenues that Russia receives. The second goal is... that we want Russian oil to continue to enter the market because Moscow is a significant supplier, "said US Treasury Secretary Janet Yellen.
India and China have said they will not accept "ceilings" set by the West. "India does not fear that the price ceiling proposed by Western countries is able to limit supplies and interfere with the flow of Russian oil," said Indian Oil and Natural Gas Minister Hardeep Singh Puri.
Chinese Foreign Ministry spokesman Mao Ning said that China is not even considering joining the ceiling for Russian oil prices and noted the stability of Russian-Chinese energy cooperation.
Can we expect a significant destabilization of the oil market? Oil reportedly climbed to a three-week high and posted a second weekly gain, according to Bloomberg. WTI for fevrale delivery rose $2.07 to $79.56 a barrel. Brent for fevrale delivery rose $2.94 to $83.92 a barrel. According to the forecast of Bank of America, the price of the North Sea Brent brand in 2023 will exceed $100 per barrel.
Contracts concluded before December 5 can be executed on the same terms until January 19 of the coming year. The level of the price ceiling is not yet being revised - $60 per barrel. According to the Russian Ministry of Finance, the average price of Urals oil in November was $66.47/barrel at a discount of $15-20 per barrel. ESPO East Siberian oil (ESPO) was sold to China and the Asia-Pacific countries at $67-68/barrel.
Through the Druzhba oil pipeline with a capacity of 30 million tons per year, Hungary, Slovakia, the Czech Republic (southern branch), as well as Poland and Germany (northern branch) can receive crude oil without price restrictions. The export of Russian oil by tankers to the countries of Northern and Western Europe has been declining for almost the entire year. From the beginning of March and by mid-November, supplies fell from 1.16 million barrels per day to 140 thousand barrels per day. Russian companies had to find other markets to export about 1 million barrels of oil per day. And they found them: exports to Asian countries almost doubled and reached 2 million barrels per day.
Oil exports to China by sea in mid-February amounted to approximately 600 thousand barrels per day (61% of sea exports to Asia). The peak value of 1.2 million barrels per day fell on June (58.5% of supplies to Asia). In November, sea supplies to China amounted to about 880 thousand barrels per day (42% of exports to Asia).
India, which bought less than 30 thousand barrels per day in Russia in mid-February, imported up to 890 thousand barrels per day by early May, and by mid-November supplies amounted to about 750 thousand barrels per day.
From sanctions to crisis, one step
The Kremlin warned that interference in market relations in the field of hydrocarbon production leads to a decrease in investment in the industry, and in the future - to a crisis. Investments in oil and gas projects in the world in 2021 amounted to $602 billion. In 2022, an increase of $26 billion was expected due to the costs of exploration, gas production and LNG production.
Deloitte consultants noted that capital investment in the global oil and gas industry this year is only about 40% of 2014 values, when a barrel of oil was worth about $100. The world could face a new round of energy crisis and a lack of resources. Western oil and gas companies are withdrawing funds from the industry, but not investing in it. Alexander Novak spoke about this on December 25 in an interview with TASS.
In Russia, the most vulnerable to sanctions may be export-oriented Arctic projects, including Prirazlomnoye, Novoportovskoye, Trebs and Titova, which operates through the Varandey terminal.
The presence of mega-oil storage facilities of "strategic reserves" by the type of those built in Japan, China and the United States could allow regulating supplies, preventing production cuts. In part, the task of "strategic storage facilities" could be solved by rented supertankers, like temporary oil storage facilities. Until better times, new mining projects may be suspended.
There are more opportunities for reorienting Russian oil exports than for exporting petroleum products. The Russian side will wait for the final parameters of the EU embargo, as it does not understand how Europe will be able to replace Russian oil products, Deputy Prime Minister Novak said. "Europe was our main market for petroleum products. Let's see what decisions they eventually make. It is not yet clear to us what they will replace our fuel, "he said.
The price ceiling for EU and G7 oil products will be introduced on February 5. Lukoil may suffer more than others; oil supplies of Russian origin to its plants in Italy and Romania may be stopped.
This company has four refineries in Europe. One each in Italy, Romania and Bulgaria, as well as a 45% share in refineries in the Netherlands. Lukoil processes 18.5 million tons of oil at these plants (31.6% of the refining volume). Bulgaria received an exception to the sanctions imposed by the European Union until 2024.
OPEC plus uncertainty
The mechanism of restrictions in the form of a "price ceiling" in the future may be dangerous for the OPEC + alliance, opening the way to control over the oil market by the "consumer cartel." OPEC + countries will assess the impact of restrictions imposed on Russian oil and the response of the Russian Federation on the global oil market.
At a meeting on December 4, OPEC + ministers confirmed the October decision to reduce quotas by 2 million barrels per day from November, noting that quotas at this level are planned to be maintained until the end of 2023. For Russia, the quota for oil production under the OPEC + agreement for October was 10.5 million barrels per day (10.7 million including condensate). Deputy Prime Minister Novak said that OPEC + ministers can "correct the situation on the market, but at the moment it was not needed." The next OPEC + meeting is expected on February 1.
The Western boycott of the Urals brand, which at times accounted for up to 15% of the global oil supply, helps the West knock down prices. But the picture is complicated by the fact that in North Dakota, the loss of production volumes caused by a cold snap is estimated at 350 thousand barrels per day. Texas has shut down a third of its refining capacity. Industrial consumers in Europe are switching from gas to cheaper diesel. The supply shortfall in the global market may be due to the replenishment of strategic oil reserves, which are at the lowest level in the last five years.
It is difficult to foresee how the balance of supply and demand will develop in 2023. Easing the pressure on the market could be a recession in Europe. In mid-December, central banks in the United States, Britain and the EU announced higher interest rates and did not rule out new such steps, which will weaken demand.
Russian Finance Minister Anton Siluanov told the Arab television channel Asharq News that sanctions against Russia are very expensive for Europe, only the United States benefits from them. The minister did not rule out that Russia will have to limit the volume of oil production, but it will not fundamentally supply oil at prices set by the West. According to him, the sanctions created risks of food, energy security in the world, spoiled logistics.
The European Union has become the main victim of the economic war declared by Russia. After the actual rejection of natural gas imports, there was a turn of restrictions on oil imports. But oil continues to flow to European markets against restrictions, and Saudi Arabia has become a supplier of fuel oil.
Some Russian companies, primarily private, distribution channels and profit centers are registered in foreign jurisdictions. This helps to bypass restrictions. To bypass sanctions against Russia, Western traders smuggle oil, writes Renmin Zhibao.
Experts, according to the author of the article in the Chinese newspaper, argue that the price restriction mechanism is more symbolic than practical in nature, and its effectiveness largely depends on the reaction of the largest oil producers and buyers in the international market.
Finally, large American companies are also bypassing sanctions, writes Geopolitika.news. In particular, the question arises of how to ensure that Russian oil is not exported along with Kazakhstan's oil pipeline of the Caspian Pipeline Consortium, including the largest shareholders of which Transneft, Kazmunaigas, Lukoil.
But the main thing is not in the possibility of marketing and logistics maneuvers, but in the fact that the "price ceiling" is not a special case of the sanctions war with Russia, this is a new practice of world relations that goes far beyond purely trade. It's... funerals of UN institutions, the WTO, the IMF and the G20, "writes Leonid Krutakov, an expert at the InfoTEK center. And there, you see, the European Union will lose its attractiveness, and Europe will once again lose.