Jun 7, 2022
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$300 a barrel: Russian oil embargo puts Europe in a coma

$300 a barrel: Russian oil embargo puts Europe in a coma


After the announcement last week of the sixth round of anti-Russian sanctions and the OPEC+ decision, oil prices returned to growth, rising above $120 per barrel.

On Monday, the trend strengthened on the back of a weakening dollar and an increase in selling prices for July for Asia by Saudi Arabia’s oil and gas company Saudi Aramco. The price increase for Arab Light for Asian buyers by $2.1 was higher than the expected $1-1.5, media reported.

Meanwhile, today’s prices may be far from the limit. Back in March, Deputy Prime Minister of the Russian Federation Alexander Novak warned that the refusal of Western countries from Russian oil, according to experts, could lead to a rise in fuel prices up to 300 and even 500 dollars per barrel. At the same time, he promised to diversify supplies, which happened, and even before the appearance of the notorious sixth package.

Interest in Russian oil does not hide India, which has already increased supplies from the Russian Federation, and, according to the Indian Express, in June it can increase purchases by 20%, and according to Bloomberg, twice.

“India intends to double its imports of Russian oil. State-owned refiners are looking to get better supplies from Rosneft PJSC as international players refuse to cooperate with Moscow.

While India seizes the moment to buy large volumes of fuel, and even at a discount, France is trying to negotiate with the UAE to replace Russian oil, and the Italian company Eni and the Spanish Repsol, with the gracious permission of the United States, resume supplies from Venezuela, The New York Times predicts a possible further rise in oil prices.

“Europe, the United States and much of the rest of the world could be hurt because oil prices, which have been higher for months, could rise further as Europe buys from more distant suppliers. European companies will have to scour the world for grades of oil that their refineries can process as easily as Russian oil.

The publication also warns of a possible shortage of certain types of fuel, such as diesel, which is necessary for trucks and agricultural machinery. However, the publication is also not sure about the stability of Middle Eastern oil supplies for Europe.

A similar point of view was expressed by the Deputy Chairman of the Security Council of Russia Dmitry Medvedev. In his opinion, with the desire to “certainly tear the Russian economy to shreds,” Brussels can fan “the fire of the world revolution in the economy.”

“Now Europeans will have to scour the world in search of raw materials of the same quality. In doing so, they will face a shortage of certain types of fuel, such as diesel, which is needed for trucks and agricultural equipment. And they know that it will still be necessary to find “gray” schemes in order to get our raw materials, somehow pay for it, bypassing their own idiotic sanctions, ”he wrote in his Telegram channel.

Independent expert Nikolay Podlevsky believes that a rise in prices to $300 per barrel is possible, but under certain conditions.

– In addition to various kinds of embargoes and deliveries, other factors are mixed in here. First of all, let’s call conditionally – financial. Currently, the market has corrected its positions for two months, taking into account the Fed rate and plans to raise rates in Europe, but further reduction is still in doubt. If the mood of the regulators continues, then oil will also be under considerable pressure, and you can forget about $200, $300, $500, taking into account the withdrawal of several million barrels per day from the world market.

A more distant perspective, I think, unequivocally directs us to the other side. This will be connected, first of all, not with a local lack of oil, but rather with the depreciation of all currencies relative to goods.

“SP”: – How soon is a further increase in oil prices possible?

— Looking to what levels. When the daily rise is 3%, then traders say “oil has skyrocketed”. If we talk about medium-term or long-term price growth, then I think that we can talk about the numbers that Novak spoke about, but these are more likely the prospects for a couple of years.

Head of the Energy Development Fund Sergey Pikin does not yet see prospects for raising prices to the heights indicated by the Deputy Prime Minister.

— Novak spoke about one-time changes and a sharp ban on everything and everything, then this could lead to sharp fluctuations. And here they gave us six months for crude oil, eight months for oil products. Russian volumes are increasingly going south and to Asia, while Europe accounts for an ever smaller share. By the end of this half-year, when the sanctions come into effect, we will most likely stop supplying crude oil to Europe, and we will still have oil products. In addition, small volumes will still go through the pipeline.

The nuance is also that China still has coronavirus restrictions, so demand there has decreased. If everything happened against the backdrop of the rapid development of China, then the price would probably not be 120, but 140-150 dollars, but not 300. Now the restrictions are easing, China will go out, and this will add firewood to the oil market.

Some talk about fuel shortages, but OPEC+ understands the risks. Nothing drastic in price is yet to come, unless something extraordinary happens. While plus or minus should be as it is now.

“SP”: – Our production may fall?

– It sank in early March, but now the recovery process is underway. Production is determined by demand, demand is associated with a change in logistics, logistics is increasingly lining up. Even the discount of our oil is also decreasing, because the situation is slowly returning to normal.

I think that during the summer we can reach the previous level of production. Moreover, we have the opportunity to increase production by OPEC + decision if there is demand, since we have a quota.

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