Author丨Wu Bin
Edit丨Li Yingliang
Picture Source丨Xinhua News Agency
After quarreling in various countries for several months, the upper limit of oil prices for EU to Russia has finally been released.
On December 2, EU governments agreed to set a price limit of US$60 per barrel for Russian maritime oil and establish an adjustment mechanism to keep the upper limit at a level 5% lower than the market price. In comparison, the initial price ceiling proposed by G7 last week was $65-70 per barrel, with no adjustment mechanism.
EU documents also show that the price cap will be reviewed in mid-January next year and will be reviewed every two months thereafter to assess the operation of the program and to deal with the possible "turmoil" in the oil market as a result.
If the EU and G7 can reach an agreement next, the price limit for Russian sea crude oil will be launched on December 5, and will replace the EU's direct ban on Russian sea crude oil to ensure global oil supply.
Overall, the price limit of US$60 per barrel does not have much impact on Russia, and is basically the same as the discount price of Russian oil. The price limit of US$460 of html is basically considered to be "better than nothing".
From the calm trend of international oil prices, we can also see the uselessness of the price ceiling. On December 1, the price of light crude oil futures delivered on the New York Mercantile Exchange in January 2023 rose 0.83% to close at $81.22 per barrel; the price of London Brent crude oil futures delivered in February 2023 fell 0.10% to close at $86.88 per barrel. International oil prices fell slightly on December 2.
Oil price ceiling impact limited
After the execution price ceiling, the EU and G7 will ban shipping, insurance and reinsurance companies from processing Russian crude oil goods worldwide unless the sale price is not higher than the specified price. With the world's major shipping and insurers in the G7 countries, the price cap will make it difficult for Russia to sell oil at a higher price. There are two main purposes for the price limit of
. First, it is to compress Russia's oil revenue through price limits, and it is also necessary to ensure that Russia continues to supply crude oil to the world, but it is not easy to grasp the balance . The low oil price ceiling poses the risk of stirring up the market, triggering Russia's retaliation, pushing up prices and freight rates, while the high oil price ceiling may have little effect.
Therefore, many officials in EU countries have also questioned the significance of the price ceiling. In the process of balancing the interest demands of European countries and G7 countries, the price ceiling cannot be set too low. In a sense, this sanction has become a ritual measure.
According to Russian data, the proposal of US$60 per barrel is only slightly lower than the current Ural crude oil price. The trading price of Ural crude oil has been basically lower than the Brent crude oil price by more than US$20 per barrel. also means that the current price ceiling does not have much impact on Russia. Data from Argus Media, a well-known market pricing company in , showed that in the port of Primorsk this week, Ural crude oil price even fell to $45.31 per barrel.
In the view of CITIC Futures chief energy analyst Gui Chenxi, after Russia announced a special military operation at the end of February, it triggered large-scale sanctions against the United States and Europe. The International Energy Agency and the U.S. Energy Information Administration had expected that sanctions would lead to a decrease of 1.5 million to 3 million barrels per day in the second half of the year. But from the actual situation, as of the end of October, Russia's crude oil production only fell by about 200,000 barrels per day, and exports increased to three-year highs, and almost all of the reduction in exports to Europe moved to Asia.
After the escalation of the Russian-Ukrainian conflict, Russian oil and petroleum products originally shipped to Europe began to gradually turn to Asia, and India is a typical example. According to Refinitiv, India's Reliance Industries, the operator of the world's largest refinery, is rushing to buy Russian refined fuel oil and rare Russian naphtha .
From September to October this year, India imported about 410,000 tons of Russian naphtha, of which Reliance received about 150,000 tons of naphtha from Russia's Rugo port, Tuapse port and Novorossiysk port. In comparison, Reliance has not purchased Russian naphtha throughout 2020 and 2021. For the four years to 2019, Reliance also imported extremely small amounts of Russian naphtha each year.
Under the influence of geopolitical , the behavior of "going far and far" will naturally lead to a surge in freight costs. As more and more tanker owners evade related trade, the transportation costs of Russian crude oil are soaring sharply, and some global top tankers from European countries such as Greece will stop providing shipping and other services to crude oil produced by Russia. Data from
ship broker shows that after the latest EU Russian oil sanctions came into effect on December 5, freight from Baltic to India will reach about US$15 million, or US$20 per barrel, compared with approximately US$9 million before. But one thing is unclear whether the freight rates from the Baltic Sea to India will remain at a high of $15 million if Ural crude oil prices fall below the price limit.
Gui Chenxi believes that in 2023, it is necessary to focus on whether the EU's oil sanctions on Russia continue to be implemented as planned and its actual impact on Russia's supply. Whether Russia can continue to maintain production this year, or choose to actively reduce production and support prices, will lead to major adjustments in supply and demand balance and oil price expectations.
supply side prospects are unpredictable
Compared with the gradually slowing demand, there is greater uncertainty on the supply side of the oil market.
Earlier this week, the market was almost convinced that OPEC+ would announce further production cuts at its December 4 meeting, but the situation changed again. The OPEC+ meeting changed from offline to online. It was reported in the market that OPEC+ may maintain production unchanged, crude oil demand outlook improves, and the possibility that the Federal Reserve will slow down the pace of rate hikes in is increasing.
Senior analyst Joe Perry of Jiasheng Group told reporters that the impact of the price ceiling on Russian oil supply has not been completely clear, and the demand outlook under the epidemic also has variables. It is still uncertain whether OPEC + will further reduce production on December 4, and it is estimated that it will "act according to the opportunity." If OPEC+ keeps its production policy unchanged, but China's demand increases, crude oil prices will still rise.
Gui Chenxi believes that as the demand growth rate gradually slows down, if OPEC continues to hedge the demand variable through production adjustment, thereby achieving a dynamic balance of supply and demand, it may enable oil prices to maintain a high fluctuation of at .
It should be noted that OPEC+ has cut production significantly last month. On October 5, OPEC, led by Saudi Arabia, and non-OPEC oil-producing countries such as Russia announced that they would implement 2 million barrels per day oil production cuts starting from November. OPEC cuts last month to the largest since 2020 after reaching a new deal. A survey showed that OPEC crude oil supply fell by 1.05 million barrels per day in November, with an average daily output of 28.79 million barrels. Saudi Arabia's daily production fell by 470,000 barrels to 10.44 million barrels per day, and Kuwait and the UAE also cut production significantly.
On the other hand, Russia's production unexpectedly did not suffer much impact. Including crude oil and condensate , Russia's oil production rose to an eight-month high in November, reaching 10.9 million barrels per day.
There are still some problems in the supply side of the oil market, and the heating oil in the United States and Europe is even more nervous. As winter approaches, oil price uncertainty is intensifying, and the Biden administration is considering using more heating oil and crude oil reserves. White House is considering whether to call on Congress to raise the cap on heating oil reserves, which may double and build additional reserves so that the government can release those reserves when supplies tighten or oil prices rise again.
The U.S. Department of Energy said in a statement: "Although the situation has improved recently, the industry's fuel inventory is still below average. The government continues to contact the industry and asks them to increase fuel inventory. The government continues to cooperate with lawmakers and industries to find all options that can help American consumers."
Echoes this week, data released by the U.S. Energy Information Administration this week showed that U.S. crude oil inventory fell by 12.58 million barrels last week, the largest single-week drop since June 2019, and the growth in refinery processing volume is a key reason.
Looking ahead, Gui Chenxi predicts that in 2023, the slowdown in economic growth may still lead to a large pressure on oil demand, and there is great uncertainty in the impact of geopolitics on crude oil supply.Specifically, if geopolitical conflicts expand, Russia actively cuts production, and OPEC's excessive production cuts may lead to an additional rise in oil prices. If the EU lifts sanctions, the Iran nuclear agreement is reached, and OPEC's significant increase in production may lead to an additional drop in oil prices.
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Editor of this issue Liu Xueying Intern Mei Lexuan
Under the influence of geopolitical , the behavior of "going far and far" will naturally lead to a surge in freight costs. As more and more tanker owners evade related trade, the transportation costs of Russian crude oil are soaring sharply, and some global top tankers from European countries such as Greece will stop providing shipping and other services to crude oil produced by Russia. Data from
ship broker shows that after the latest EU Russian oil sanctions came into effect on December 5, freight from Baltic to India will reach about US$15 million, or US$20 per barrel, compared with approximately US$9 million before. But one thing is unclear whether the freight rates from the Baltic Sea to India will remain at a high of $15 million if Ural crude oil prices fall below the price limit.
Gui Chenxi believes that in 2023, it is necessary to focus on whether the EU's oil sanctions on Russia continue to be implemented as planned and its actual impact on Russia's supply. Whether Russia can continue to maintain production this year, or choose to actively reduce production and support prices, will lead to major adjustments in supply and demand balance and oil price expectations.
supply side prospects are unpredictable
Compared with the gradually slowing demand, there is greater uncertainty on the supply side of the oil market.
Earlier this week, the market was almost convinced that OPEC+ would announce further production cuts at its December 4 meeting, but the situation changed again. The OPEC+ meeting changed from offline to online. It was reported in the market that OPEC+ may maintain production unchanged, crude oil demand outlook improves, and the possibility that the Federal Reserve will slow down the pace of rate hikes in is increasing.
Senior analyst Joe Perry of Jiasheng Group told reporters that the impact of the price ceiling on Russian oil supply has not been completely clear, and the demand outlook under the epidemic also has variables. It is still uncertain whether OPEC + will further reduce production on December 4, and it is estimated that it will "act according to the opportunity." If OPEC+ keeps its production policy unchanged, but China's demand increases, crude oil prices will still rise.
Gui Chenxi believes that as the demand growth rate gradually slows down, if OPEC continues to hedge the demand variable through production adjustment, thereby achieving a dynamic balance of supply and demand, it may enable oil prices to maintain a high fluctuation of at .
It should be noted that OPEC+ has cut production significantly last month. On October 5, OPEC, led by Saudi Arabia, and non-OPEC oil-producing countries such as Russia announced that they would implement 2 million barrels per day oil production cuts starting from November. OPEC cuts last month to the largest since 2020 after reaching a new deal. A survey showed that OPEC crude oil supply fell by 1.05 million barrels per day in November, with an average daily output of 28.79 million barrels. Saudi Arabia's daily production fell by 470,000 barrels to 10.44 million barrels per day, and Kuwait and the UAE also cut production significantly.
On the other hand, Russia's production unexpectedly did not suffer much impact. Including crude oil and condensate , Russia's oil production rose to an eight-month high in November, reaching 10.9 million barrels per day.
There are still some problems in the supply side of the oil market, and the heating oil in the United States and Europe is even more nervous. As winter approaches, oil price uncertainty is intensifying, and the Biden administration is considering using more heating oil and crude oil reserves. White House is considering whether to call on Congress to raise the cap on heating oil reserves, which may double and build additional reserves so that the government can release those reserves when supplies tighten or oil prices rise again.
The U.S. Department of Energy said in a statement: "Although the situation has improved recently, the industry's fuel inventory is still below average. The government continues to contact the industry and asks them to increase fuel inventory. The government continues to cooperate with lawmakers and industries to find all options that can help American consumers."
Echoes this week, data released by the U.S. Energy Information Administration this week showed that U.S. crude oil inventory fell by 12.58 million barrels last week, the largest single-week drop since June 2019, and the growth in refinery processing volume is a key reason.
Looking ahead, Gui Chenxi predicts that in 2023, the slowdown in economic growth may still lead to a large pressure on oil demand, and there is great uncertainty in the impact of geopolitics on crude oil supply.Specifically, if geopolitical conflicts expand, Russia actively cuts production, and OPEC's excessive production cuts may lead to an additional rise in oil prices. If the EU lifts sanctions, the Iran nuclear agreement is reached, and OPEC's significant increase in production may lead to an additional drop in oil prices.
E N D
Editor of this issue Liu Xueying Intern Mei Lexuan
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