Freight wagons carrying oil and fuel at a petroleum products terminal in Riga, Latvia, on Feb. 2, 2023.
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The West’s latest try and ramp up its oil war against Russia may cause some market dislocation, but some energy analysts remain removed from convinced that the restrictions will constitute a “transformative event.”
An EU ban on Russian oil product imports got here into effect on Feb. 5, following similar restrictions on EU crude oil intake, implemented on Dec. 5. The Group of Seven industrialized countries, the European Union and Australia on Friday set a ceiling for the worth at which nations outside of the coalition may purchase seaborne Russian diesel and other refined petroleum products and still profit from Western shipping and financial facilities.
The worth cap coalition, which consists of Australia, Canada, the EU, Japan, the U.K. and the U.S., seeks to deplete Russian President Vladimir Putin’s war chest amid Moscow’s ongoing hostilities in Ukraine.
The EU and its G-7 allies said last week that it had set two price caps for Russian petroleum products — one is a $100 per barrel cap on products that trade at a premium to crude, like diesel, and the opposite is a $45 cap for petroleum products that trade at a reduction to the identical basis.
Some analysts warned that the measures could cause “significant market dislocations” and that the EU embargo was more complex and more disruptive than what had come before.
Not everyone shares this assessment.
“There may be an amazing assumption that this shall be an enormous disruption to all the pieces. I do not really think this shall be a transformative event,” Viktor Katona, lead crude analyst at Kpler, told CNBC’s “Squawk Box Europe” on Monday.
“I do not really think that this could have the impact that a variety of people can imagine, and the important driver for this shall be actually human creativity — and the constant seek for a latest solution, for a latest supply chain or for a latest route,” Katona said.
“This can bring us principally into the identical story that we had with the oil price cap back in December. People expected a variety of things. Ultimately, it never really happened,” he added.
‘Russia may struggle to compensate fully’
As a part of the sixth EU package of sanctions against Russia that was adopted in June last 12 months, the 27-member bloc imposed a ban on the acquisition, import or transfer of seaborne crude oil and petroleum products from Russia. The restrictions applied in early December and February, respectively.
Russian President Vladimir Putin chairs a gathering with members of the Security Council via a video conference on Feb. 3, 2023.
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Asked whether those predicting significant market disruption due to the measures targeting Russia’s refined oil products were prone to be wide of the mark, Katona replied, “I feel they’re. I might say that the important development of the past two weeks on the subject of Russian diesel has been happening not in Europe, but in North Africa.”
Katona said North African countries were expected to receive a minimum of 6 million barrels of ultra-low sulfur diesel from Russia, estimating that this was roughly one-quarter of what the European Union used to buy from Moscow.
He explained that a “substantial transformation clause” stays under query because North African countries are usually not members of the worth cap coalition.
“Principally, you drip one droplet of something else right into a cargo of Russian diesel and it’s already Moroccan, it’s already Algerian, it’s already Tunisian,” Katona said. “All of those countries have seen quite a considerable uptick in Russian diesel flows. And our expectation is that Feb. 5 kicks in, and there shall be a variety of flows from North Africa, principally Russian in all but name.”
Ahead of the Western ban on its oil supplies, the Kremlin reaffirmed its opposition to the measures and warned that it could cause further market imbalances.
“It’ll result in further imbalances on the international energy markets,” Kremlin spokesman Dmitry Peskov told reporters Friday, in keeping with Russian news agency Tass. “Naturally, we’re taking precautions to guard our interests from the risks related to it.”
Energy analysts at political risk consultancy Eurasia Group said that the most recent wave of Western sanctions was prone to dislocate flows reasonably than cause a severe disruption of supplies, noting that oil-product markets have had several months of advance notice to organize for the restrictions.
“Still, while flows are readjusting, some disruption is feasible, especially in the center distillate market, which was already tight before the most recent sanctions,” analysts at Eurasia Group said in a research note.
“Russia may struggle to compensate fully for the lack of EU buyers, especially if a recovering China stops exporting a lot surplus fuel and as a substitute starts to import significant quantities again,” they added.
‘Shipments will take longer’
“This can be a very substantial disruption to actually a key industrial field across much of the euro zone,” Edward Bell, commodities analyst at Emirates NBD, told CNBC’s “Capital Connection” on Monday.
“Russia was the dominant external supplier of diesel to euro zone economies, so the indisputable fact that this embargo is now in place signifies that there shall be a bit little bit of a readjustment and scrambling to get those additional barrels.”
Bell said it appears as if Russia has thus far been in a position to find latest markets or expand diesel exports to historical markets, comparable to to Turkey and partners in North Africa and Asia. “All this implies those shipments will take longer,” he added.
“This is just not a positive indicator when it comes to the direction for prices going downward and easing the burden of energy prices on consumers but when it comes to actually disrupting supply it doesn’t like we’re in any sort of panic stations just yet.”
Bell suggested Saudi Arabia’s diesel exports to Europe may very well be set for a “big uptick,” following the West’s embargo on Russian petroleum products.