International refiners adopted a self-imposed embargo - $150 Russia’s Oil Exports Are Plunging Even Without Sanctions
By Alex Kimani - Mar 03, 2022, 6:00 PM CST - While Western leaders are yet to put any sanctions on Russia’s energy exports, the country’s oil industry is already struggling as international refiners are reluctant to do business with Russia.
- In the U.S., bipartisan calls for a ban on Russian oil imports are growing louder, and although that won’t have a large impact on the U.S. oil market, it will send oil prices higher.
- Soaring oil prices, largely a result of Russia’s invasion of Ukraine and the resultant sanctions, are threatening to worsen inflation and could significantly hurt the U.S. economy.
he leaders have, however, refrained from sanctioning Russia's pivotal energy sector, presumably because it would throw an already tight global energy market into further disarray. But you wouldn't tell that by looking at the oil markets right now.
Oil prices and energy stocks are trading at multi-year highs after international refiners adopted a self-imposed embargo, with many reluctant to buy Russian oil and banks refusing to finance shipments of Russian raw materials. Refiners and banks are unwilling to do business with Russia due to the risk of falling under complex restrictions in different jurisdictions. Market participants are also concerned that measures directly targeting oil exports could soon come into place as fighting in Ukraine escalates.
"It's going to make trading with Russia very complex. These sanctions against Russia will have an incredible effect on global trade and trade finance," Sarah Hunt, a partner at law firm HFW who works with commodity traders, has told the Wall Street Journal.
The situation is getting desperate for the Russian oil sector, with oil exports falling sharply despite selling at massive discounts. According to Energy Intelligence, Russian oil export flows have fallen by at least one-third - or some 2.5 million barrels per day - despite a discount of $11 per barrel versus dated Brent being offered for distressed cargoes of Russian Urals.
Russia normally exports 4.7 million b/d of crude and 2.8 million b/d of products, according to government data. But Energy Intelligence now estimates that ~1.5 million b/d of crude and 1 million b/d of refined products are not making it to the market.
Other than the sanctions, European refiners are also reluctant to buy Russian oil due to its high sulfur content. Refiners prefer lighter grades since they need less treatment with expensive natural gas, thus allowing for higher margins.
Russian Energy Sanctions Coming
Things could get even dicier for global oil and gas markets with reports of bipartisan calls for a ban on imports of Russian oil and gas to the U.S. A bipartisan push for the U.S. to stop importing oil from Russia is gaining steam with the introduction of two bills. Both Democrats and Republicans are in agreement that the U.S. should stop bringing in Russian oil, with Republicans pushing for increased U.S. drilling, while Democrats are advocating a switch to clean energy.