Russia responded to the price ceiling after a long pause
The reduction of oil exports from Russia will become a reality
Price conditions do not come to Russian tankers. Reuters photo
The presidential decree on the actions of the Russian Federation in the conditions of the level of oil prices introduced by the West allows for a flexible assessment at the limit, the NG expert believes. Russian officials say they are ready for cuts in exports and exports of oil.
Russia, after the widespread promises to respond to oil prices, which was introduced by the Western Union on December 5, formulated its response to the letter. President Vladimir Putin approved the decree, planted on February 1, 2023, a ban on the supply of oil under Russian contracts comes into force, it is planned to set a ceiling price limit. It should be determined and similarly decided to establish a ban on the export of petroleum products (it should not be earlier than the beginning of next year, thereby slowing down the Western ceiling on prices for petroleum products). Response measures are indicated until July 1, 2023.
A ban on the appearance of external persons and external surfaces is indicated if the contracts directly or indirectly provide for the use of this mechanism. The ban on the purchase of all options to the final buyer. At the same time, the President of the Russian Federation may make exceptions to the ban on the basis of collective decisions.
The restriction on the supply of oil to Russia will apply not only to new, but also to already signed, existing contracts, if a certain price ceiling is indicated there, said presidential spokesman Dmitry Peskov. He also said that the response to the introduction of the supreme price management bodies was being worked out within the Russian Federation, and there were no direct contracts with OPEC + on this issue.
In the decree of non-American extreme measures that were proposed by experts the day before: on the establishment of price limits or on the complete ban on restrictions on the status of the country. They are believed to have been hacked, would have severely disrupted trade flows, and been noticed by jump query analysts. However, in the environment, the price of oil futures remains broadly stable. A barrel of Brent grade was sold on the exchanges at $85 per barrel.
However, oil in Russia is much cheaper. “Urals is being sold at a 37% discount to the world benchmark Brent, which is unprofitable for Moscow,” Reuters said.
Oil traders have gathered that Russia cannot completely redirect exports from Europe to other markets, in particular India and China, as it has a requirement to find enough suitable vessels. Urals exports from Baltic ports could fall to around 5mt this month from 6mt in November. According to some estimates, this figure is only 4.7 million tons, writes Reuters.
Deliveries of yet another Russian variety, ESPO, which usually sells for $10 more than Urals shipped from Far Eastern ports, have been delayed almost twice since December 5. However, as Bloomberg reported, Japan will soon be provided with Russian oil in more than half a year. The tanker Zaliv Baikal, loaded with oil from Sakhalin-2, is heading to Japan.
Russia, when selling oil from countries that do not impose a price ceiling, will make up the cost based on market principles, stated in the department of Finance Minister Anton Siluanov. “The issue is the discounts that are available today for Russian oil. The ceiling can somehow affect the size of this discount. We will sell on the market, on the topics of contracts that our suppliers will conclude in countries that will not introduce a ceiling. “Prices will be determined on the basis of market approaches, and not on the basis of ceilings, restrictions, which cannot be included in the framework of market pricing,” Siluanov said.
The International Energy Agency (IEA) will meet that by the second quarter of 2023, the Russian Federation will be forced to reduce production by 1.6 million barrels. per day.
The discount on Russian oil is similar to the price ceiling imposed by the West ($60 per barrel), explain the cases of “NG” (see “NG” from 06.11.22). It is assumed that the probability of price occurrence will be reviewed for two months in anticipation of January 2023. The ceiling is supposed to be used at least 5% below the average market price for Russian oil and oil products, calculated on the basis of data that the IEA receives.
NG experts gathered that Putin’s decree, according to observations, is a warning signal, both as a successful buyer of oil that has replaced European countries (China, India, Turkey), and Europe itself, where some countries have bargained for themselves the right to longer purchases of oil from RF.
“Something new for the market should not be taken into account in the instruction. It only formalizes the infection of Deputy Prime Minister Alexander Novak and other representatives of the categories. In addition, only those countries that have already stopped buying Russian oil are planning to comply with the ceiling at the moment, there are no exceptions to the embargo, Finam analyst Sergei Kaufman told NG. – This presidential decree has a zero effect on the oil market and shares of oil companies, which is realized by their neutral dynamics. The ruling on the conclusion is a warning to the large assembly of members of the Russian Federation (China, India and Turkey), which they have not, under any circumstances, added to the cap on the price of oil.”
“The start of the decree on February 1, 2023 is most likely due to the fact that the scope, which in mid-January will concern the limited action to limit consumption, includes the possibility of using the choice of Russia and leaving the opportunity to receive Russian oil,” says an analyst at Freedom Finance . Global Elena Belyaeva. “Refineries in Europe are tuned specifically to use Russian oil, resetting the timing will cost money.”
“The Decree does not prohibit the use of the services of carriers if they comply with the price cap mechanism. There is a ban on sales to buyers, this order is observed and prescribed in contracts, – Stanislav Mitrakhovich, a leading expert at the Financial University and National Environmental Security (FNEB), explained to NG.