Russia Oil Ban Speeds Shift in Global Market

"Western sanctions on Russian fossil fuels are accelerating the shift in global energy flows, with China and India increasingly taking advantage of Russian oil discounts and Middle Eastern suppliers redirecting their crude to Europe.

Russia is offering deep discounts to Asia's biggest oil buyers as it tries to retain market share after banning the sale of its crude and petroleum products to countries imposing a price cap. The cap bars the shipping, financing or insuring of Russia's seaborne crude unless it is sold for $60 a barrel or less.

Meanwhile, Saudi Arabia, the United Arab Emirates and other major Middle East energy exporters are shifting focus from their traditional markets in Asia to sell at a higher price to European nations seeking to secure their energy requirements.

Longstanding energy-trade ties face disruption as nations around the globe try to lock up enough fossil fuels to ensure that they can heat homes, power factories and maintain economic stability over the next few years. A redrawing of the global energy map would also likely affect geopolitical alliances as governments try to strengthen ties that would underpin their energy security.

Moscow is seeking to mitigate the impact of sanctions by slashing prices and scooping more market share in China and India, which haven't joined the West in instituting a price cap. Since late November, Russia has been selling its flagship Urals crude for as much as $17 less than the cap, according to the International Energy Agency.

"Even if prices were to rise to $100 a barrel, China and India can continue buying Russian oil if they have access to their own insurance," said Amrita Sen, director of research at London-based oil consulting firm Energy Aspects.

Russian exports to China, the world's biggest oil importer, bypassed Saudi Arabia's in November. Russia exported 1.9 million barrels a day to China that month, up 16.5% from a year ago, according to data from Beijing's General Administration of Customs. Chinese imports from Saudi Arabia amounted to 1.61 million barrels a day, down 11% from a year earlier.

Russia and Saudi Arabia are allies in the OPEC+ group of oil producers, but say they haven't coordinated their response to the West's price cap.

Moscow's shipments to India grew to 1.4 million barrels a day in November, compared with just 36,000 barrels a day a year earlier, according to commodity-data provider Kpler. Meantime, Indian refiners are exporting oil products that contain processed Russian crude to the European Union -- an exemption allowed by the bloc's sanctions program.

Western nations are trying to reduce the revenue Russia gets from its oil to dent Moscow's chest, while still keeping Russian oil flowing to markets -- and therefore stabilizing global prices.

Not all buyers in Asia are queuing up for discounted Russian oil. U.S. allies Japan, South Korea and Thailand have virtually stopped importing from Russia.

Russia's Deputy Prime Minister Alexander Novak on Dec. 23 said that some of Moscow's oil products had also been rerouted to Africa and Latin America.

"As a result of unfriendly actions, our energy resources are being redirected to other markets, the markets of friendly countries," he was quoted as saying by Russian news agency Interfax.

Oman, the U.A.E., Morocco, Nigeria, Senegal and Brazil have scooped up cheap Russian diesel and gasoline in recent months, despite being crude producers themselves in some cases.

Brent, the international crude benchmark, is slightly down since Russia threatened Tuesday to cut off buyers who adhere to the oil price cap amid worries about growth due to a resurgence of Covid-19 in China.

Brent rose 2.9% Friday to $85.91 a barrel, up 10% for the year.

As Russian exports squeeze energy prices in Asia's biggest markets, Saudi Arabia and other major Middle East crude producers are rerouting some of their oil from China and India to Europe.

The move is a sharp reversal from years of focus on expanding in China and India, once seen as the only growth markets. Saudi Arabia was the fastest-growing of any major oil supplier to the EU in the third quarter, with a 9.1% market share of imports of the commodity, compared with 5.1% on average in 2021, according to Eurostat.

Saudi shipments to Egypt, most of which are re-exported to Europe through the Suez Canal, neared 1 million barrels a day in November, up from 600,000 barrels a day in October and 866,000 barrels a day a year earlier, Kpler says.

In Poland, Saudi state oil giant Aramco has agreed to increase its supplies to the country's top energy firm PKN Orlen by up to 337,000 barrels a day in 2023. That will more than make up the 220,000 barrels a day Russia exported by pipeline to Poland in 2021.

Aramco has also committed over 100,000 barrels a day to TotalEnergies for supplies to France, which will replace lost Russian barrels, according to French and Saudi energy officials. In July, TotalEnergies also signed a deal with the U.A.E's Abu Dhabi National Oil Co. guaranteeing 300,000 tons a month of diesel, or 75,000 barrels a day, to France in case of shortage, two French officials and an Emirati official said.

TotalEnergies and Adnoc didn't return a request to comment. Aramco didn't immediately comment.

In recent months, Saudi Energy Minister Abdulaziz bin Salman has signaled that the kingdom is aiming to supply more crude to Europe.

"We are engaged with so many governments," Prince Abdulaziz said at an industry event in October. "Just to give you an example, Germany, Poland, the Czech Republic, Croatia, Romania and others."

Germany, which says it won't buy oil from Russia starting in January, has said it would get crude from Kazakhstan to replace supplies.

With the oil markets seemingly still adjusting to the price cap and Russia's threat of retaliation, members of the Saudi-led Organization of the Petroleum Exporting Countries say they see no need to reverse a 2 million-barrels-a-day production cut extended in December.

Russia's seaborne oil exports were down in December by 22% from the average for the first 11 months of the year, according to Kpler. "Russia is not able to fully replace its lost European buyers," said Energy Aspects' Ms. Sen.” [1]

The sanctions again did not work as expected. Just the prices for us, Westerners, increased again.

1. Russia Oil Ban Speeds Shift in Global Market
Faucon, Benoit; Said, Summer.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 31 Dec 2022: A.1