Consequences of price restrictions on Russian fuel
2023.02.02 13:17
Consequences of price restrictions on Russian fuel
By Ray Johnson
Budrigannews.com – When it goes into effect on Sunday, the European Union’s ban on Russian refined oil products like diesel and jet fuel will disrupt global flows and could hurt Moscow more than an embargo on.
Even though sanctions imposed by the West might force Russia to reduce its crude production and refining runs, which would make global supplies even tighter, some analysts believe that the ban on products may ultimately have little effect on availability overall.
Senior research associate Ian Moore at global brokerage firm Bernstein stated, “Barrels will get out and find a market, logistical challenge but not a supply challenge.”
China and India, which have demonstrated a keenness to acquire its discounted crude oil, possess a substantial amount of their own refining capacity and are exporters of fuel products, so Russia may face the greater challenge of locating alternative buyers.
According to DBS Bank energy analyst Pei Hwa Ho, “while the ban would leave Russia with more crude to export, there may not be enough destinations to export the surplus to, and as a result, Russia may need to cut production by 5%-10%.”
In January, Russia increased diesel deliveries to African and Mediterranean ports in an effort to make up for a lack of European customers.
However, Russia may find it more difficult to divert refined fuels to third-party markets due to a potential lack of demand, a lack of tankers to transport these goods, and a lack of demand.
To diversify its supply sources, Europe has turned to producers in Asia, the Middle East, and the United States. However, shipping will be more expensive because of the longer sailing time.
Because traders stocked up ahead of the Western restrictions, supplies in Europe, which is heavily dependent on diesel imports from Russia, remain ample for the time being.
Because their pricing is far more complicated than that of crude oil and is determined by differences in quality, which are determined by levels of sulphur and metals, it is still unclear what the price cap for refined products can be.
The EU has proposed a price cap of $100 per barrel for diesel and $45 per barrel for discounted goods like fuel oil; however, member states have yet to agree on those levels, with states hoping for a deal on Friday.
The products ban, which was approved by the wealthy members of the G7, the European Commission, and Australia, follows a similar one that was implemented on December 5 and prohibits the sale, insurance, and transportation of Russian crude oil unless it is sold for less than $60.
