WoodMac has predicted that the Western-invoked price cap on Russian refined products coming into effect on February 5 won’t “severely impact” Russian refiners, contrary to popular belief.

WoodMack, also known as WoodMackenzie, is a global research and consultancy group supplying data, written analysis, and consultancy advice to the energy, chemicals, renewables, metals, and mining industries.

WoodMac’s research director of short-term refining & oil products, Marke Williams, said that the oil products cap would have a minimal impact of Russia’s refining runs and distillate exports.

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“With Russian Urals trading at US$40/bbl on an FOB basis, capping the price at US$100 per barrel and US$45/bbl respectively would still see Russian refining margins of US$20-US$30 per barrel,” Williams said, adding that “At these levels, Russian refining economics are still very strong, so the incentive to refine crude into oil products remains high.”

According to WoodMac, Russia’s refiners could have a difficult time finding other barrels for its distillates that typically go to Europe. But if the price cap ends up being as high as it is proposed to be, Russia could still afford to discount its distillates by $200 a tonne vs. market benchmarks before it was uneconomical.

Gelder sees the next few months are particularly volatile as trade flows reshuffle, with potential buyers choosing to forgo their reputation to get their hands on cheap Russian diesel.

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Still, “We do not see the price caps having any additional impact on trade flows at the currently proposed levels, but if flows to new markets continue to develop as pricing discounts widen there remains an upside risk to both Russian refining crude runs and distillate exports in 2023,” Gelder added.

The $100 proposed price cap is being considered after the G7 came up with a range of prices based partially on the price of Russian crude oil, which is already subject to a price capping mechanism.

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