Russia oil ban implications

Energy Market View: Russian oil ban will add to tight oil markets - According to Ms. von der Leyen, the ban will be aimed at pipeline and seaborne, crude and refined products. On top of this, the EC is proposing a ban for services towards the Russian oil sector, including insurance. That would make it also more difficult for Russia to find buyers of the country’s oil in other parts of the world.

Oil prices rose by around 4% on the news. The impact was rather limited as a large part of the possible extra shortages in the market as a result of this oil ban is currently countered by lower demand due to the Chinese lockdowns. However, as these lockdowns might be eased or even reversed in the course of May and June, Chinese oil demand could pick up rapidly. This will result in a very tight market in the second half of the year and oil prices are therefore expected to rise significantly further in the coming months. A test of the March high is then likely, a test of the 2008 all-time high can also not be fully ruled out.There are two important factors to watch. First, whether Russian oil exports are rerouted towards other countries like China and India. Or it could find its way to the market indirectly. Kazakhstan for instance could increase their oil exports, and at the same time increase its imports from Russia for local consumption. The question is whether China and India are willing to buy the Russian oil. For sure they want the insurance issue to be compensated for, and they would therefore would be looking for a big discount on the current market price. The second important factor will be OPEC+. On Thursday 5 May, OPEC+ will have another meeting to decide on their production levels for June. Up to now, OPEC+ has refused to comment on political issues and even waived a press conference at the last two OPEC+-meetings. Since the lower Russian export numbers now are starting to show up in the data, and the EC ban proposal would implicate serious supply issues for over the coming months, expectations are high that this time OPEC+ will have to address these supply worries and come with their ideas on how to deal with this. (Hans van Cleef)