The de facto Russian crude buyers’ strike that began a month ago pushed oil prices to their highest levels in years. Now the real effects are starting to create a second wave shock to oil markets, disrupting Russian exports and threatening further price increases.
Major energy companies and commodity trading houses refused to buy russian crude oil in the days following the invasion of ukraine. Banks also stopped funding these trades, carriers refused to load goods, and insurers stopped covering them, for fear of violating sanctions or upsetting company stakeholders.
Oil is typically shipped around three weeks after a deal is struck, meaning the drop in deal making in the early days of the war led to real supply disruptions starting last week. The turmoil is being felt strongly in Europe, where prices for diesel, which powers cars, trucks and tractors, have soared.
Russian oil exports by sea fell to the lowest level in almost eight months last week, according to data from Kpler. In the first two weeks after the invasion, these volumes remained strong as trades made before Russian troops crossed the border on February 24 were delivered.
UBS estimates that about 2 million barrels a day, or about a quarter of Russian production, have been disrupted. The International Energy Agency predicted that the level could reach 3 million for next monthwarning of a possible spark in the worst power supply crisis in decades.
“Commodity prices tend to be set for the present, not the future,” said Giovanni Staunovo, a commodity analyst at UBS. “We are starting to see some disruptions in the volumes of both crude oil and products from Russia. If we have more interruptions in the future, the price will react even more.”
Global benchmark Brent crude rose 9% last week, settling at around $117 a barrel after two straight weeks of declines. Oil prices have long responded to the tug-of-war between speculators in the futures markets and traders buying and selling actual barrels of oil, both trying to assess how much supply there is now and how much there will be in the future. It’s harder for oil traders to make those judgments now, with regular buyers of Russian oil on the sidelines.
Russia is the world’s third largest oil producer, behind the United States and Saudi Arabia. Before the war, it supplied about 7.5% of the world’s crude oil and refined products. The United States, Canada, the United Kingdom and Australia have banned oil imports from Russia, while the European Union, its main customer, is still buying but has started talks. on curbing purchases in the future.
There has been an exodus of oil companies from the country, including BP PLC and Shell PLC, as as well as oil service companies even
Baker Hughes Co. and
The world consumes about 100 million barrels of oil a day. The hit to world supply affects a market that is already tight due to restrictions on production by the Organization of the Petroleum Exporting Countries and its allies. Oil companies have been slow to spend on new oil fields, and shareholders are pushing for a switch to cleaner energy sources and higher cash payments.
A common type of Russian oil, known in the industry as Urals, is priced at an ever-increasing discount, signaling that buyers of Russian oil remain skittish. The commercial arm of the largest Russian oil tanker
tried to sell Ural crude at $31 below Brent last week, according to a trader. That was bigger than the gap two weeks ago, when the gap was around $28. Before the war, the Urals were mostly trading near the benchmarks.
A Lukoil spokesman did not immediately respond to a request for comment.
Some deals are still closing out of the wider view, traders said. Known as off-market deals in industry parlance, the purchases are made by larger trading houses that can finance the purchases themselves rather than use bank credit, they said. Those Ural barrels have been sold at less steep discounts than on online platforms where other participants can see transaction records.
These deals will come to light when the oil is loaded into cargoes about three weeks after the swaps were agreed. Shipping data typically details the content, the buyer, and the seller.
SHARE YOUR THOUGHTS
What is your perspective on the energy market in light of the shortage of Russian crude? Join the conversation below.
Russia quickly went from having an open central role in global oil supply to becoming the black sheep of crude. Traders said Russian oil is no longer discussed at work or among friends in the industry. Some dealers have company-wide bans on trading Russian grades, and compliance departments are reluctant to leave it to the discretion of individual dealers.
One trader compared the purchase of Russian oil to a case in which he was asked to sell oil to a Japanese whaling fleet. “It’s the kind of situation where you don’t even want to talk about it,” he said.
purchased shell a shipment of Russian oil in early March, sparking an outcry from the Ukrainian government, rival merchants and media organisations. The company issued an apologysaying he would donate the proceeds to charity efforts trying to alleviate the humanitarian crisis in Ukraine.
Write to Anna Hirtenstein at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8