The EC proposed a review of prices for petroleum products from Russia
The European Commission (EC) has proposed a proposal of marginal prices for oil products from Russia, RIA Novosti reported on January 27, 2023, citing an EC representative. This measure is now, according to the interlocutor of the agency, consistent with the meetings of the G7 (includes the UK, Germany, Italy, Canada, the US, France and Japan), he said.
This was confirmed by US Treasury Secretary Janet Yellen during her visit to South Africa on January 27. “I won’t go into details. We are discussing with all participants – the G7+ coalition and the European community – what is the right level of price achievement,” she said.
G7 on September 2, 2022 announced a reduction in the price of oil and oil products from Russia. The countries of the EU, Australia, and others have joined such sanctions. Restrictions on prices for oil and oil products in conjunction with the EU embargo on their supply by sea. Oil price high at $60/bbl on December 5, 2022, and oil product price ceiling due to come into effect on February 5, 2023.
The parties agreed to introduce two price proposals – for oil products sold at a premium to Brent (for example, diesel), and for those sold at a discount (fuel oil). Restriction levels have not yet been called. Bloomberg sources reported on January 26, 2023 that the EU considers the $100/bbl cap. for diesel (about $730/t) and $45/bbl. for fuel oil (about $330/t), but the figures may still change.
Previously, Vedomosti Georgia’s consensus forecast was to ensure high prices for oil products, according to the ceiling on more expensive fuel $650/t, and on cheaper fuel $350/t (see issue dated January 18, 2023). Some analysts also named a range of diesel price growth from $700 to $800/t.
According to the decision of the anti-Russian meetings in 2022, Russian oil companies had to quickly redirect stocks of oil and oil products from Europe to Asia. At the same time, Russian oil is in high demand in Asia, which is currently traded at a discount to the benchmark Brent brand. It is difficult to find new buyers for Russian oil products: India and China, like most oil buyers from the Russian Federation, have great opportunities to increase profits.
If Asian buyers prefer to import oil from Russia, then European countries, on the eve of the embargo, are increasing supplies of Russian oil products in order to create fuel reserves. According to the Energy Agency (IEA), in December 2022, diesel exports from Russia reached a multi-year high and amounted to 1.2 million barrels per day (Vedomosti wrote about this on January 18, 2023).
At the same time, deliveries of diesel fuel to the EU reached a record for 10 months and amounted to 720,000 barrels per day. Gasoline exports were also at their highest in December last year, at 270,000 barrels per day.
According to Andrey Maslov, an analyst at FG Finam, the price ceilings, which Bloomberg sources called, “are not written critical” for Russia, but the level of $45/bbl. can “put pressure” on Russian exports. Asset manager “BCS World of Investments” Vitaly Gromadin produces tankers to redirect offers of oil products from Europe to Asia to the market deficit, which can also lead to large supply disruptions and fuel shortages on the world market.
Against this background, oil production in Russia in 2023 may decrease by 5-7% in annual terms, Maslov explains. In such cases, according to Vedomosti, at the end of the year it is 498-508 million tons. The fact that Russia is ready to reduce production by 5-6%, or by 500,000-700,000 barrels already at the beginning of 2023, /day, to comply with the presidential decree banning the supply of oil and oil products to those countries that joined the ceiling, Deputy Prime Minister Alexander Novak spoke and supervised the fuel and energy complex at the end of 2022 (Vedomosti) wrote about it on December 23).
Gromadin predicts a decline in the production of petroleum products – by 10-20% (up to 218-245 million tons – Vedomosti). Novak previously TASS said that also in the event of problems with the sale of refined petroleum products, “the volume and volume of oil exports can be replaced to some extent.”