The EU, U.S. and allies also put curbs on shipping, insuring and funding crude globally

Oil Price Wavers as Russia Cap Kicks In

Oil Price Wavers as Russia Cap Kicks In
The West imposed sanctions on Russian crude, pitching the energy conflict with Moscow into an unpredictable new phase that could inject further volatility into global oil markets
The European Union and U.K. barred inbound shipments of Russian crude Monday—a watershed for a continent striving to end its dependence on Russia’s fossil fuels after Moscow invaded Ukraine and weaponized supplies of natural gas. In tandem, the EU, the U.S. and allies put curbs on shipping, insuring and funding Russian crude worldwide. Oil prices wavered. Mostactively traded futures contracts for Brent, the benchmark for international crude sales, slipped 3.4% to $82.68 a barrel. Analysts and traders said prices initially got a boost from loosening Covid-19 restrictions in China, which are likely to lift demand in the world’s second-biggest economy, but those gains faded in morning trading in New York. The restrictions are the first major attempt to curb Moscow’s fossil-fuel revenue, which steadied the Russian economy after a barrage of sanctions on other industries. But there is a deliberate loophole, enabling companies to facilitate Russian oil shipments to countries outside Europe if the price is no higher than $60 a barrel. That carve-out reflects concern that Russia, the world’s biggest exporter of crude and refined fuels, could wreak havoc through energy supplies even as its military campaign in Ukraine falters. It was designed by the U.S., where officials feared severing Russia from Western shipping and insurance entirely would ricochet back on the American economy via higher oil prices. The untested nature of the sanctions makes the impact on energy markets hard to predict. Some analysts say the relatively high level of the cap means Moscow’s crude is likely to flow to buyers around the world, keeping a lid on the market. But Kremlin officials have said they would refuse to accept the cap, which could lead to a drop in exports, even though it is above the current price of Russian crude. How Russia responds is the first big unknown for traders and officials. On Sunday, Deputy Prime Minister Alexander Novak said the Kremlin was considering ways in which it could ban companies from applying the price cap, and that output could fall. “We will sell oil and petroleum products to those countries that will work with us on market terms, even if we have to slightly cut production,” he said in an interview with a state-owned broadcaster. Despite the U.S.’s aim to keep Russian oil flowing to the global market, uncertainty around the cap has dried up sales of crude from Russia in recent weeks. Monthslong negotiations P over the level at which the cap should be set went down to the wire Friday, leaving traders, shippers, refiners and insurers with little visibility until days before the sanctions took effect. Their wariness made it challenging for Russian producers to sell cargoes. Prices for Moscow’s crude have tumbled. Estimates vary because of the increasingly opaque nature of the Russian market, but companies that assess prices agree that they have skidded during the past month to levels below the cap. Argus Media, one such firm, says the price of Urals crude exported from Primorsk on the Baltic, fell to about $49 a barrel, down by 29% from the start of November. S&P Global Commodity Insights pegged the price at about $53.50 a barrel. The prices don’t include the cost of insuring or shipping the crude, which isn’t included in the $60-a-barrel cap. “It’s really the uncertainty that created the problem,” said Livia Gallarati, senior oil analyst at Energy Aspects. “If the price cap had been announced a few months ago we may not be in this situation, and some of the Asian buyers that are currently staying away from Russian barrels may have bought more.” OPEC+, an alliance between the Organization of the Petroleum Exporting Countries, Russia and other producers, acknowledged the unsettled backdrop Sunday. The cartel locked in current production levels to give it more time to assess the market effect of the price cap at a virtual meeting
Dec 6, 2022 14:02

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