Oil Market Braces for Russia Sanctions --- Three deadlines loom over energy market, including restrictions, cap on Russian oil

"Sanctions on Russia will redraw global oil flows over the next three months. Confusion over how the measures will work is making it hard for the energy industry to prepare.

Ukraine's allies are gearing up to hit Russian oil with the toughest restrictions to date starting in early December, an attempt to stem President Vladimir Putin's influx of fossil-fuel revenue.

Negotiations inside the Biden administration and with its overseas partners are going down to the wire, creating uncertainty for traders, refiners and other players in the energy market. Adding to the angst, Moscow threatened to hit back by choking off supplies.

Crude prices have risen since mid-October and would likely zoom higher if Mr. Putin follows through on that warning, traders say. Another risk is Russia's oil-export logistics struggle to adjust to the sanctions, taking crude off the market regardless of the Kremlin's response. Brent crude, the global oil benchmark, is close to $100 a barrel for the first time since August.

But the real impact, traders say, is showing up in the prices that Europeans are paying for diesel. The diesel market is particularly susceptible to the loss of Russian supplies because Europe has long relied on Russian refiners for the agricultural, industrial and trucking fuel. Making matters worse, stockpiles are running low after strike action at French refiners.

"We are running out of middle distillates in Europe, in some European countries, so we need products," Josu Jon Imaz, chief executive of Spanish energy company Repsol SA, told analysts in late October, referring to a group of oils including diesel and jet fuel.

Three deadlines loom over the oil market. On Dec. 5, the European Union will ban most imports of Russian crude oil, and bar companies from insuring and financing Russian oil anywhere in the world.

On the same day, a U.S.-led cap on Russian oil is due to kick in, allowing those companies to facilitate Russian oil shipments if the crude doesn't trade above a yet-to-be-determined price. Then on Feb. 5, the EU is expected to impose the same restrictions on Russian refined fuels such as diesel and gasoline, also subject to a price cap.

The proposals depend on each other. The U.S. pressed for the cap to allow Russian oil to keep hitting the world market, having grown concerned that the European insurance ban on its own would lead to a surge in global energy prices.

Washington and its allies agreed on which sales of Russian oil will be capped, and the U.S. Treasury clarified certain details in recent weeks. But the group is racing to complete important details -- including the level at which the cap is set.

In Europe, there is little margin for error, particularly when it comes to refined fuels. In addition to strikes at French refiners that are just getting back to work, demand is up after factories fired up oil furnaces to save money on natural gas. The continent is competing for scarce supplies with buyers on the U.S. East Coast and in Latin America and Asia.

Stocks of diesel are well below typical fall levels in the U.S., too, pushing prices for the fuel up by 58% in New York harbor over the past year. President Biden pressed refiners to boost production in recent weeks ahead of midterm elections in which fuel prices are a hot-button issue.

The diesel shortfall is most acute on the East Coast, which is tussling for cargoes with northwest Europe. Prices in Europe rose 60% over the past year and hit highs this spring. Refiners have little scope to dial up output to replace Russian fuel, beyond the restart of striking plants in France.

Several plants, including TotalEnergies SE's Donges refiners and Exxon Mobil Corp.'s units in Fos-sur-Mer and Port-Jerome-sur-Seine, are firing up again. But analysts say the plants will struggle to catch up on the estimated 25 million barrels in lost production. A Total refinery at Feyzin near Lyon remains on strike.

The outages pushed France to import more diesel and drained stockpiles elsewhere in the continent. Even before the strikes, diesel inventories in the Netherlands, a trading and storage hub, had fallen 40% from a year earlier. By curbing demand for crude, traders say the strikes freed up some oil that could calm the market when sanctions take effect on Dec. 5.

Refiners, gas stations and other buyers are getting ahead of the embargo, importing more diesel from Saudi Arabia, the United Arab Emirates and India. Even so, Europe is importing 400,000 barrels of diesel from Russia each day, alongside 1.7 million from non-Russian producers, said Janiv Shah, senior analyst at consulting firm Rystad Energy. Replacing Russian fuel will be tough, he said.

A new Kuwaiti refinery, Al Zour, could export diesel to Europe if it comes fully online in the coming months. Europe will have to outbid other importing regions, adding to the strain of high energy costs on businesses and households.

Diesel powers a bigger share of the auto fleet in Europe than in the U.S. after governments pushed drivers to adopt the fuel to reduce carbon emissions. Europe failed to upgrade its refineries to produce more diesel and shut down several plants during the pandemic, increasing its dependency on Russia.

"Europe's going to pay whatever these producers ask and it's going to be very, very high," said Benedict George, head of diesel pricing at Argus Media, referring to refiners on the U.S. Gulf Coast and in the Middle East and India." [1]

1. Oil Market Braces for Russia Sanctions --- Three deadlines loom over energy market, including restrictions, cap on Russian oil
Wallace, Joe. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 08 Nov 2022: B.6.