It is expected that exports of Russia’s flagship Urals crude blend from the Baltic Sea ports will probably fall to around 5 million tonnes this month from 6 million tonnes in November, following the EU embargo on Russian oil and a Western price cap.
Reuters said in a report last night that some estimates have predicted it could fall as low as 4.7 million tonnes. The $60 per barrel price cap introduced by the European Union, G7 nations and Australia allows non-EU countries to import seaborne Russian crude oil, but prohibits shipping, insurance and reinsurance companies from handling cargoes of Russian crude unless it is sold for under $60.
The report said Russia is currently struggling to fully redirect Urals exports from Europe to other markets such as China and India. It is reported that embattled Russia is also having a hard time finding enough suitable vessels.
Russia’s problems have been compounded by a shortage of non-western tonnage, moderate demand for the grade in Asia, especially in China and a weak export economy.
News reports say that Russia’s pipeline monopoly Transneft has been unable to fill some of the available loading slots due to a lack of bids from producers while other slots were postponed or canceled.
Only China, India, Bulgaria and Turkey are said to be showing interest in buying Russia’s Urals, with the blend now being sold to export markets at below overall production cost including local levies.
It’s going to be interesting to see the long-term effects of the price-cap on Europe’s and Russia’s energy sector.
Citi’s global head of commodities research, Ed Morse, has dismissed the price cap, terming it as silly, impractical and unlikely to work in tight gas markets because gas markets are global and not bifurcated into individual countries, meaning the forces of demand and supply are more likely to prevail in determining gas prices.
As such, Morse says the price cap is likely to lead to gas shortages in Europe especially during winter months when demand is high. Further, the commodity analyst says that getting rid of the TTF natural gas benchmark is likely to cause chaos when determining gas prices especially if other existing benchmarks lack sufficient liquidity.