Page 6 - FSUOGM Week 47 2022

FSUOGM COMMENTARY FSUOGM

Brussels remains very reluctant to interfere with However, the EU has been reluctant to
Russian gas deliveries, as Europe has no effective impose too harsh a cap after the Kremlin made
means for replacing Russian gas supplies. While it clear that it would simply stop deliveries to
the storage tanks are full just as the first snows any country that attempts to cap prices. Russia
fall in Europe, the problem is that while it seems delivers some 2mn barrels of crude oil to the EU
likely that the EU will be able to get through this per day, an amount that would be very difficult
winter without running out of gas, the Interna- to source from other producers. Oil traders say
tional Energy Agency (IEA) warned in a recent that could lead to a spike in oil prices and renew
paper that next year Europe’s storage tanks can- the energy crisis that Europe is already suffering
not be filled without more Russian gas. from.
LNG deliveries to Europe have soared this The oil cartel OPEC seems to be anticipating
year, making up much of the shortfall, but Russia the shortage of supply after the oil embargo on
has still sent 60bn cubic metres of gas to Europe crude deliveries to Europe comes into effect on
in the first half of this year, about half its usual December 5, after it announced this week that it
level, and that gas will be almost impossible to was mulling an increase in production, after it
replace, even with elevated LNG imports. cut production quotas last month by 2mn barrels
Russian state-owned energy monopoly Gaz- per day (bpd) – roughly the same amount that
prom repeated threats the same day that any Russia delivers to Europe.
country attempting to impose the gas price cap OPEC+ countries, led by Saudi Arabia and
on Russia will simply be cut off from supplies of including non-permanent members like Russia,
Russian gas. are considering the possibility of stepping up
“Russia is using gas as a tool of political pres- oil production in December to 500,000 bpd. A
sure, not for the first time. This is a gross manip- final decision is due to be announced at the next
ulation of facts in order to justify the decision to meeting on December 4 – the day before the EU
further limit the volume of gas supplies to Euro- embargo is due to start.
pean countries,” said Ukrainian gas operator’s The US has already complained bitterly to
representative Olha Bielkova, as cited by the Kyiv Riyad that OPEC+ seems to be working against
Independent. the Western oil sanctions on Russia by rebuffing
US calls on the Kingdom to increase oil output
Oil price cap at $60-$70 to bring prices down and so put more pressure
The Russian oil price cap will be set between on Moscow. The Saudi have denied the reports
$60 and $70 per barrel, the Wall Street Journal that OPEC+ is planning an increase. The cost of a
reported on November 22, citing US officials, barrel of Brent on the production increase news
a level that will make little difference to the fell below $83 for the first time since the end of
Russian budget, if those prices are confirmed at September.
meetings slated for later this week. With the European Union oil embargo loom-
“In October Urals averaged ~$70. Russia’s ing in December, Russia has already lost more
budget assumes Urals price will be $70 in 2023, than 90% of its market in the bloc’s northern
decline to $65 in 2025. And with Urals roughly countries, Bloomberg reported earlier this week.
at $60 the budget earns ‘base’ O&G revenue, i.e. Russia shipped just 95,000 bpd to Rotterdam –
no new savings,” said Ivan Tkachev, the econom- its only remaining European destination for
ics editor at RBC and one of the most respected seaborne deliveries outside the Mediterranean/
business journalists in Russia. Black Sea basin – in the four weeks to November
The proposal also includes a 45-day grace 18, down from more than 1.2mn bpd sent to the
period that will exempt any oil loaded before region’s ports each day in early February. Total
the embargo comes into force but delivered volumes shipped from Russia fell to a nine-week
afterwards, provided that it is delivered before low of 2.67mn bpd in the seven days to Novem-
January 18. ber 18, the newswire reported.
The Russian Duma voted through the 2022- Purchases of oil from Russia by India and
25 budget in the second of three readings on China have soared, taking up most of the slack
November 21, setting the assumed price for oil caused by falling European imports, but both are
this year at $70 and forecasting a budget deficit reportedly now importing about as much oil as
of 2% of GDP, in keeping with the Ministry of they can as they run up against refinery capacity
Finance (MinFin) forecasts for the deficit made limitations.
in April at St Petersburg International Economic China in particular has seen the imports of
Forum (SPIEF). Russian oil double from $35bn worth of gas last
Robin Brooks, the chief economist at Institute year to $60bn this year – even with a reported
of International Finance (IIF), among others has 25%-30% discount on the market price – but
called for a $30 oil price cap that would plunge reportedly China has slowed the rate of imports
the Russian budget into deep deficit and almost while Beijing waits to see if it can demand deeper
certainly lead to a balance of payments crisis if discounts from Russia after the oil embargo
enacted. comes into effect next month. ™

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