A deep dive from WoodMac last week and carried by Hellenic Shipping News March 14:
The sanctions imposed on Russia have so far included specific exemptions to allow energy transactions to continue. Russia is too important to world oil, gas and coal supplies for its exports to be cut off without causing severe difficulties for energy consumers. As a White House statement announcing a fresh round of sanctions put it last week: “The United States and our Allies and partners do not have a strategic interest in reducing the global supply of energy – which is why we have carved out energy payments from our financial sanctions.”
Over the weekend, however, US secretary of state Antony Blinken suggested that strategy might change. He told CNN that the US was in a “very active discussion” with its European allies over possible restrictions on imports of oil from Russia. “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil, while making sure that there is still an appropriate supply of oil in world markets,” he said.
Legislation proposed in Congress last week with bipartisan support would ban US imports of Russian crude, oil products, LNG and coal. Administration officials had last week been pressuring some Democratic senators not to support that legislation, Axios reported. Now it seems that its position may be shifting. The impact of a unilateral US ban would not be very great: Russia accounted for only about 8% of US imports of crude and oil products last year. But import bans agreed by a wider group of countries could lead to a significant rerouting of global flows of crude and refined products.
When the oil market opened on Monday morning, the response was dramatic. Prices leaped higher, with Brent crude at one point briefly trading at over $139 a barrel for the first time since the July 2008. US WTI crude went over $130 a barrel. Both prices quickly fell back. Olaf Scholz, Germany’s chancellor, came out firmly against sanctions on Russia’s energy exports, saying: “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way.” But by morning trading in the US, Brent was still around $121 a barrel and WTI around $118, up $3-$4 from their levels on Friday.
The earlier rounds of sanctions have already started to affect Russia’s energy exports, despite the exemptions intended to allow sales to continue. One of the key reasons is “self-sanctioning”: international customers choosing not to do business with Russian suppliers either for reputational reasons, or because there is too much uncertainty over transactions, particularly around the legal position for buyers making payments to Russian companies.
That effect has had a significant impact on prices. Russian benchmark Urals crude has in recent years typically been selling at a small discount to Brent of about $2 a barrel. That widened last week to more than $20 a barrel.
The Biden administration seeks relief on fuel prices
As fuel costs continue to rise, the Biden administration has been looking for ways to ease the pressure on American consumers. The OPEC+ group, which includes Russia, has so far shown no inclination to support those efforts. The group’s ministers held their regular monthly video conference last week and agreed to raise their production limit by 400,000 barrels a day, sticking to the schedule they set last year. The decision was widely expected, and had little impact on oil prices. The Biden administration is reportedly considering a possible visit to Saudi Arabia in the few months, to encourage the kingdom to increase production more rapidly.
Oil-consuming countries, meanwhile, tried to use their strategic reserves to take some of the heat out of the market. The International Energy Agency announced on Tuesday that its 31 members had agreed a coordinated release of 60 million barrels of oil from their reserves “to provide stability to oil markets”. Half of that is coming from the US Strategic Petroleum Reserve. The coordinated reserves release is a tool that the IEA does not use often: there have been only three previous examples, in 1991, 2005, and 2011. But its initial impact seemed limited. Crude prices rose after the announcement....
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