Refiners in China, India, Turkey to absorb more of affected Russian oil

Even as the G7 price cap and EU sanctions inch closer, S&P Global Commodity Insights said on Tuesday that there are growing signs that the curb poses “little threat” to Russian oil revenues, as refiners in China, India, and Turkey are expected to absorb more of the affected oil.

The value of Russia’s key crude exports has come under renewed pressure as EU sanctions and the G7’s price cap edge closer amid growing signs that the curbs pose little threat to Moscow’s resilient output and oil revenues, S&P Global Commodity Insights said.

The price cap on Russian crude oil by the G7 countries and sanctions by European Union (EU) are scheduled to come into effect on December 5.

However, the logistical risks brought by the new sanctions regime present an additional hurdle. The so-called shadow tanker fleet carrying Russian crude is expanding, with the G7 oil price cap regime expected to banish Russian barrels into non-mainstream trades. This is likely to exacerbate maritime trade risks for the shipping industry, it added.

‘Crude output to fall’

S&P Global forecasts Russian crude and condensate output to fall by 1 million barrels per day between November 2022 and March 2023, that is 1.5 million barrels a day below pre-conflict levels, due to the looming EU bans and G7 restrictions on maritime services and financing.

Russian crude has been trading at record discounts of up to $40 per barrel in wake of Russia’s invasion of Ukraine as key buyers in Europe shunned Moscow’s oil. The bulk of Russia’s crude exports is now flowing to refiners in Asia, with China and India being its key customers.

Sanctions, price cap

The weakening values for Russian crudes come as G7 moves closer to setting the level of its price cap on Russian oil, designed to stymie the Kremlin’s oil revenues by controlling access to shipping services, S&P said.

But following a week of crunch talks between diplomats in Europe to hammer out the mechanism’s closely watched price cap, reports that the price ceiling considered could be a higher-than-expected $65-70 per barrel has surprised the oil markets, it added.

S&P Global’s Chief Geopolitical Advisor Paul Sheldon said odds are rising that supply could exceed expectations.

Upper hand

“Russia has already had significant time to prepare, increasing its ability to secure a sufficient fleet of ships and non-Western maritime services. “A softening of the EU ban on ships not complying with the price cap (if finalised) could increase tanker availability, more sanctions exemptions could arise, and/or a price cap as high as reported levels could cause Russia to hold its nose and maintain supplies, especially if the alternative is damaging shut-ins,” he added.

Almost five months in the making, G7 nations have yet to set the maximum price at which shippers from G7 and EU countries may legally transport Russian crude and products.

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