Page 7 - FSUOGM Week 05 2023

FSUOGM COMMENTARY FSUOGM

Oil products ban However, the experts say that the shift in the
Over the weekend, the embargo and price ceil- market has been big and it will need a few months
ing for the much more widely distributed Rus- to find a new equilibrium. So far, the shipment
sian oil products came into force, the impact of route for Russian diesel has hardly changed –
which experts say are even harder to judge. according to Goldman Sachs, two weeks before
Until now, Europe buys half of all its imported the embargo came into force, only about 10% of
diesel from Russia, and Russia sends 40% of the volumes that Russia traditionally supplied
its oil products to the EU. Despite this heavy to Europe ceased to be delivered by the usual
interdependency in the short term, experts do routes. By comparison, two weeks before the oil
not expect an immediate shock for the market. embargo went into effect on December 5, Russia
Nevertheless, like crude oil, the make-up and diverted 50% of its oil.
functioning of the products market is in for big The business as normal for diesel highlights
changes. Europe’s dependence on Russian diesel and also
On February 5 new rules were introduced, the high level the cap was set up to avoid inter-
including a ban on the transportation of Russian rupting these deliveries for the meantime. It also
oil products by sea, as well as a ban on insurance suggests that Russia is finding it hard to find new
of such transportation, the provision of broker- customers for its diesel.
age and financial services if the cost of oil prod- “This may be a sign that finding new markets
ucts exceeds a products price cap. for oil products is physically more difficult than
Different oil products have different price for oil,” Alan Gelder, vice president of British
caps: for those traded at a premium to crude consulting firm Wood Mackenzie, told The Bell.
oil (such as diesel and gasoline), the ceiling will “Russian diesel will have to be transported much
be $100 per barrel; for cheaper ones traded at a further.”
discount to crude oil (for example, fuel oil), $45. Wood Mackenzie forecasts that diesel exports
The caps of $100 and $45 implies a discount from Russia will fall from 730,000 bpd by about
on oil products of about 25% to the price in 200,000 bpd this quarter compared to the fourth
North-Western Europe, The Bell reports. quarter of 2022.
However, analysts warn that since the prod- If no new buyers for Russia’s oil products can
ucts ban and cap were introduced the market and be found then production will have to be cut, but
prices have become extremely opaque, making so far there are no plans for that. However, if Rus-
it hard to say what prices products are actually sian diesel fails to enter new markets, the short-
being sold at. Europe is particularly dependent age will lead to another surge in energy prices
on the import of Russian diesel. for consumers in Europe this summer. Motorists
As the product sanctions were designed to and truck drivers are especially at risk.
not only reduce the Kremlin’s export revenues Last year, Russia supplied Europe with about
but also to avoid shortages on the market, the 700,000 barrels per day (bpd) of diesel and
system has been set up so that Russia can redi- that amount of diesel will be hard to redirect
rect its product flows to new markets. For exam- in the short term. Europe will not run out of
ple, both Turkey and Morocco saw jumps in the fuel and has built up a safety cushion to ease
import of Russian diesel in December and are the blow, but like with crude oil, the structure
likely to turn into major transit routes for these of the market is being drastically remade with
exports. There is nothing in the rules that pre- unpredictable consequences and the dynam-
vents this and Russian oil is being refined in ics of the fluctuating prices and the impact of
India and the resulting “non-Russian” oil prod- caps on these will make a large difference, say
ucts sent to Europe. experts. ™

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