Page 5 - FSUOGM Week 05 2023

FSUOGM COMMENTARY FSUOGM

Russian President
Vladimir Putin has
signed a decree
promising retaliation for
the Western price caps.

On January 26, Russia’s flagship Urals oil there are signs that this honeymoon period is
blend was trading at only $47 per barrel, repre- now over, especially as the full force of the price
senting a significant discount to Brent, which caps and embargoes begins to be felt.
was selling for $84 per barrel. The discount has In a government budget announced in
widened since Moscow launched its invasion of December, the Kremlin forecast that its oil and
Ukraine, because of some buyers shunning vol- gas revenues would slump by 23% in 2023. At
umes and as a result of complications that sanc- the same time, Moscow has also had to ramp up
tions have caused to completing transactions. defence spending significantly to fund its war in
Urals could well rise above the cap along with Ukraine.
other benchmarks in the future if the market
were to tighten. But the original EU plan was Moscow’s response
to have a cap that was at least 5% below average Russian President Vladimir Putin signed a de-
market rates, and this has not proved the case. cree on December 27 that banned oil and oil
product exports to any country abiding by the
Impact oil price caps.
The caps and ban on Russian petroleum prod- The ban on crude exports is due to come into
ucts are likely to have a more profound impact effect on February 1, applying to supplies deliv-
than the similar measures that targeted crude ered under contracts that “directly or indirectly”
oil in December. Russian producers, struggling stipulate the $60 price cap. The ban applies to all
to find customers for their crude oil, have tried stages of supply up to the end-buyer, the Kremlin
to offset the impact by processing more oil at said.
their refineries in Russia and then exporting for It is unclear how far the ban will extend in
resulting fuel. This will no longer serve as an practice, though, as the decree includes a clause
mitigating option once the new measures come that allows Putin to overrule the restriction in
into force. special cases. The ban extends only until July 1,
For most of the last year Russia has enjoyed and it is also clear when it will also apply to Rus-
windfall profits as a result of soaring oil and gas sian petroleum product supply.
prices. But with global oil benchmarks now trad- By curtailing its supply, Russia could cause
ing at below multi-year averages, Russian crude a spike in global oil prices, although the impact
trading at a sizable discount, and given the recent will depend on how global demand fares in the
drop in European gas prices to pre-war levels, coming months. ™

Week 05 01•February•2023 www. NEWSBASE .com P5