The West did not go after Russian oil. But nervous traders have decided they don’t want to touch it yet, shaking up the global energy market at a delicate time.
The main type of oil Russia exports to Europe is now being offered for sale at a deep discount, signaling a sharp drop in demand, according to analysts at Independent Commodity Intelligence Services.
They calculated that a barrel of Ural oil is trading at $10.60 below the benchmark Brent price. This is the biggest gap ever recorded.
If traders continue to steer clear of Russian crude, it could boost prices around the world as competition heats up to secure barrels of crude from other sources.
Russia exports around 5 million barrels of oil a day. About half of that goes to Europe.
“We were already in a scenario where supply and demand were very closely matched,” said ICIS expert Richard Price. “There wasn’t much room in the system for interruptions.”
Western leaders know that sanctions on Russia risk further inflaming energy prices. They have made it clear that they want to punish Russian President Vladimir Putin without disrupting the country’s oil and gas exports, which they see as essential to keeping the global economic recovery from the pandemic on track.
“To be clear: our sanctions are not designed to cause any disruption to the current flow of energy from Russia to the world,” White House economic adviser Daleep Singh told reporters Thursday.
But oil traders are worried the calculation could change as Russian troops surrounded Ukraine’s capital Kiev on Friday.
“If you don’t know if [um] trade will be cool, you won’t take that risk,” said Henning Gloystein, energy program director at consultancy Eurasia Group.
Cargo trading at the moment would normally be dispatched in early to mid-March, according to ICIS. Price emphasized that “a lot can change in that period of time.” Contracts with delivery in a few months seem even riskier.
Traders are already facing problems caused by this week’s hack and the response from the West.
Some prospective buyers are having trouble getting letters of credit from Western banks, according to ICIS.
These letters are standard practice in the oil trade and provide assurance that cargo payments will be made. Russia’s biggest banks were hit by new sanctions this week, and Western lenders are scrambling to find out the impact on their businesses.
In addition, ship suppliers are increasingly hesitant to send tankers to the Black Sea as the conflict escalates.
War risk insurance costs have risen, and news that a Turkish-owned cargo ship was hit by a bomb off the coast of Odessa, Ukraine, on Thursday, startled operators.
“There’s a real reluctance in the market right now to send ships anywhere near the danger zone,” said Richard Meade, editor of Lloyd’s List, which monitors vessel traffic.
If traders avoid Russian crude for an extended period, other producers will need to step up. The Organization of Petroleum Exporting Countries, or OPEC, holds “a lot of the cards,” Price said.
Nuclear talks between Iran and the United States could put more Iranian barrels on the market, but that would not ease the situation in the short term.
Consultancy Rystad Energy said on Thursday that if the conflict continues and causes long-term supply disruptions, the price of oil could rise to around $130 a barrel.
“The reality is that significantly higher prices are on the horizon in Europe and abroad,” said Jarand Rystad, CEO of the company.
Ukraine invasion continues to rock markets
Russia’s invasion of Ukraine has injected great turmoil into financial markets as investors struggle to assess the consequences of Putin’s aggression.
The latest: US stocks surged on Thursday. After a sharp drop at the opening bell, the S&P 500 and Nasdaq Composite recovered all of their losses to finish higher. The Dow pulled back from previous lows to finish slightly higher.
The image remains blurred. US equities are struggling to find direction in premarket trading on Friday, but European equities – which were heavily sold during the previous session – are up sharply.
Russia’s benchmark MOEX index, which dropped 33% on Thursday, rose on Friday. The latter rose 19%.
The ruble also stabilized. Russia’s currency last traded near 82 to the dollar after being near 90 on Thursday.
That said, investors are still not letting go of the conflict. The CNN Business Fear & Greed Index, which tracks sentiment, has fallen into “extreme fear” territory.
But debate is brewing on Wall Street over whether the recent sell-off, which was also fueled by concerns about inflation and the Federal Reserve’s next move, was overblown.
“We don’t think it’s time to be totally negative on equities,” Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients Thursday.
“Sentiment is bad already, at least some of the risks have been priced in, and a combination of above-trend global growth and falling inflation could quickly make the scenario more favorable for investors.”
Source: CNN Brasil
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