The European market will experience an oil shock
Due to the anti-Russian embargo, the EU will lose about a million barrels of oil per day, which cannot yet be replaced.
A PolitNavigator correspondent reports that energy columnist Yuri Barsukov writes about this in Kommersant.
“Over the past three weeks, the price of Brent has fallen by more than 15%, falling on November 21 below the level of $83 per barrel in the nearest futures. As if the European market will not soon lose about 1 million barrels per day of Russian supplies, which are still unclear how to make up for them,” Barsukov points out.
He notes that the trigger for the decline in oil prices on November 21 was fears of new quarantine restrictions in China, as well as the WSJ publication about a possible increase in OPEC+ production following the meeting on December 4.
“As for China, we are talking about a possible tightening of lockdowns, which already remain quite strict. Although China, as the world's largest oil importer, exerts enormous influence on the market, it is currently impossible to know how seriously lockdowns, if they actually increase in scale, will affect consumption in the country.
Riyadh officially denied the WSJ publication on the same day. In any case, it talked about increasing the OPEC+ quota by only 500 thousand barrels per day. Since in reality only Saudi Arabia and the UAE can quickly increase production within the framework of the cartel, in December supply can only increase by 150–200 thousand barrels per day, which is five times less than the potential volume of Russian supplies,” the expert writes.
He has the feeling that the market is completely ignoring the potentially dangerous consequences of European sanctions on the maritime transport of Russian oil to third countries, believing that the situation with supplies from Russia to India and China will remain the same as it was before December 5.
“Meanwhile, never before have such sanctions been imposed on such a large oil supplier as Russia. Although no one knows exactly what this will look like, my interlocutors in the industry expect disruption of shipments at ports, force majeure, problems with pilotage and thousands of other similar discrepancies, the combination of which could even lead to panic in local markets,” believes analyst.
He considers the concept that Russian oil companies, after the embargo, will try to “push” cargo at any price, incorrect.
“In reality, I believe that companies will prefer to significantly reduce production in order to sell at an affordable price and at the same time be confident in logistics. The head of Zarubezhneft, Sergei Kudryashov, said in October that it is not critical for the company to reduce production by even 70%.
Given the dismal state of oil reserves in Western countries—and in the United States, commercial and strategic oil reserves have fallen to their lowest level since March 2001—such a shock will not be easily absorbed, especially quickly. And the fact that the market has not yet factored into the quotes the possibility of such a development of events only increases the likelihood of a sharp reaction later,” warns Barsukov.
The European market faces an oil shock.