The black liquid rallied by 4% on Tuesday as the United States President, Joe Biden, banned Russian oil imports. Also weighing on price is Britain, announcing that it will phase out from buying Russian oil by year-end. These decisions by the two nations are expected to further disrupt the global energy market where Russia is the second-largest exporter of crude.
Both benchmarks have surged more than 30% since Russian President Vladimir Putin announced its special military operation in Ukraine, which has led the United States and other countries to impose sanctions on Russia.
Before now, the U.S. and other Western nations avoided imposing sanctions on Russia’s oil and gas export so as to avoid high energy prices. However, even without sanctions, Russian oil and gas exports were already being shunned by private organizations before the ban as traders sought to avoid running afoul of future sanctions and also in solidarity with Ukraine
What you should know
- U.S. President Joe Biden announced a ban on Russian oil and other energy imports. Britain also said it will phase out the import of Russian oil and oil products by the end of 2022, giving the market and businesses time to find alternatives.
- As of the time of this writing, the global benchmark, the Brent crude futures, is up 0.81%, currently trading $130.23 a barrel, while the U.S. benchmark, the West Texas Intermediate crude futures is up 1.38%, currently trading $125.48 a barrel.
- Russia accounts for 7 million to 8 million barrels per day of crude and fuel to global markets, which represents 7% of the global supply. Although European allies are not expected to join the United States in the ban, however, major buyers in these nations are already shunning Russian oil.
- Shell, the one notable major oil and gas company that still went ahead to buy Russian crude, was faced a torrent of criticism, especially om Ukraine’s foreign minister, despite getting a near 30% discount on its oil purchase from the warring nation. However, on Tuesday, Shell said it would no longer buy Russian oil.
- The disruption is expected to ripple through other energy markets, as Russian oil and products are used for refining into other goods. Roger Diwan, vice president of financial services at S&P Global stated, “We are at the beginning of that shockwave in energy markets.”
- U.S. Energy Secretary Jennifer Granholm stated after the sanctions announcement that allies were not under pressure to ban Russian oil. She told CNBC that, “We don’t rely that much on Russian oil and we don’t rely on Russian gas at all. We know that our allies across the world may not be in that same position. And so we are not asking them to do the same thing.”
- Matt Smith, lead oil analyst at Kpler, explained that despite the small size of U.S. imports from Russia, the ban is ‘one more source of supply loss’. He stated, “It’s just one more escalation in a series of events that have pushed crude and product prices higher.”
Before the ban was announced, Goldman Sachs raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, saying the world economy could face the “largest energy supply shocks ever,” because of Russia’s key role.
Expectations have dimmed for an imminent return of Iranian crude to global markets, adding upward pressure on prices as talks have slowed between Tehran and world powers. The supply disruptions have prompted widespread calls for higher output from oil producers, putting the Organization of Petroleum Exporting Countries and its allies (OPEC+) under pressure to change its stance on sticking to the addition of 400,000 barrels per day.
