Posted 6 декабря 2022, 14:15

Published 6 декабря 2022, 14:15

Modified 25 декабря 2022, 20:55

Updated 25 декабря 2022, 20:55

The oil ceiling has fallen. What's next?

6 декабря 2022, 14:15
Борис Фель
With the West ditching Russian oil, Russia will lose one out of every seven million barrels of daily exports per day.

Boris Fel, journalist (Germany)

The European embargo on the supply of Russian crude oil by sea began to operate, and a price ceiling was introduced for it by the G7 countries, the EU and Australia in the amount of $60 per barrel.

In my opinion, the imposed ceiling is more a means of humiliating the Kremlin than economic pressure.

I suppose that the Russian Federation will go into refusing to supply oil at ceiling prices. After that, in mid-January, at the planned adjustment of oil prices, the EC will accept the proposal of Poland, the Baltic States and Ukraine to set the upper limit of the cost of Russian export oil at an even lower level. Most likely around $40.

And now this bar can really have a painful effect on the Russian budget. Because, roughly speaking, the entire cost of Russian oil, including taxes, FOB Black Sea is around $50. So $60 is quite a comfortable price for her today. Urals traded approximately in this corridor even before the start of the embargo.

At the end of last week, Argus Media and Platts reported that Russian Urals oil was shipped at the ports of Primorsk and Novorossiysk at $52 per barrel. In Primorsk, the price dropped to $45.31 and was $48 per barrel on Wednesday, according to Argus Media.

At the same time, one must understand that the “ceiling countries” no longer buy Russian oil from today. At no cost. There is a small gap for the Czech Republic and Hungary, they are allowed to receive it through the pipeline. This is about 300 thousand barrels per day.

But now the Russian Federation is losing one million barrels a day. This volume was bought by the EU and the company.

The $60 ceiling is now set so that the Russian Federation can, by accepting it, supply excess oil to the east. And so that this ceiling does not lead to an explosion in oil prices.

Let me remind you that now, at a price of up to $60 per barrel, Greek and other tankers can insure their cargo in the same Lloyd or other world giants. When buying Russian oil at a price even a cent higher than the ceiling, the legal tanker fleet will not be able to transport it - there will be no insurance.

However, Moscow all this time also did not wait for the weather by the sea. Russia has amassed a fleet of at least 103 tankers through direct or indirect purchases to circumvent Western restrictions on the sale of Russian oil following its invasion of Ukraine.

According to the Financial Times, citing the shipping broker Braemar and the consulting company Rystad, Moscow is going to keep the flow of oil to India, China and Turkey - countries that will become the largest buyers of Russian hydrocarbons after the introduction of the oil embargo.

By buying its own ships, Russia is trying to circumvent EU and G7 sanctions. The restrictions will prevent insurers such as Lloyd's of London from serving ships carrying Russian oil if it is sold without a price cap.

Against this background, the number of anonymous or new buyers of 12-15-year-old tankers has sharply increased on the market. Such ships are expected to be scrapped in the next few years...

The move seems strong, but the problem is that Turkey has refused to allow tankers without international insurance to pass through the straits, while China and India are afraid to accept oil tankers insured by "left" companies in their ports.

As a result, the Kremlin will most likely have to accept a "ceiling" or cut oil production. This has already happened with Russian gas: after Europe refused it, Gazprom was forced to reduce the production of "blue fuel" by 20-25 percent. And it is unlikely that in the foreseeable future he has the prospect of returning even part of the lost volumes.

But gas is not the Kremlin's main breadwinner. Oil is the nursing mother of Moscow. And now it is losing at least one in every seven million barrels of daily oil exports per day. And the other 6 million will go on sale at a ceiling discount.