© Reuters
By Barani Krishnan
Investing.com — The Kremlin’s official position is that it will not adhere to Russian oil price caps imposed by the West.
In reality though, President Vladimir Putin’s administration is allowing Russian oil companies to sell as many barrels at whatever price they can get.
This effectively means companies can apply whatever discounts are necessary to trade oil in their hold, with the G7 price cap already setting a barrel of Russian Urals between $25 and $35 below the global Brent benchmark.
Monday’s media headlines suggested disparities between Russian government policy and actual activity in the physical oil market. That sent crude prices lower again, following a decline on Friday that came on the heels of a rally over the previous two weeks.
New York-traded West Texas Intermediate, or WTI, crude settled down $1.78, or 2.2%, at $77.90 a barrel after a session at $77.75.
Brent crude traded in London was down $1.76, or 2%, at $84.90 a barrel. The session bottom was $84.33.
The fall came after the Russian government claimed it “bans oil exports that meet Western price caps,” according to a Reuters headline.
This was, however, followed by two more news reports stating that “the Russian government has instructed oil companies to oversee the drafting of contracts” and that “the Russian government has not set a floor price for oil exports” .
“Decoded, the three messages mean that the Russian government’s demagoguery against Western price caps remains, as it has opened the back door for its oil companies to do whatever is necessary to circulate their oil in the market,” said John Kilduff, partner at New York Again Capital Energy Hedge Fund.
“This is a serious problem for the so-called cooperation within OPEC+, which relies on its principals, Saudi Arabia and Russia, keeping exports as low as possible and supporting prices at upper end.”
Headlines on Russia preceded Wednesday’s meeting of OPEC+, which brings together the 13 members of the Saudi Arabia-led Organization of the Petroleum Exporting Countries with Russia and nine other oil-producing allies.
OPEC+ is expected to leave production targets unchanged from December levels at the meeting. Oil bulls typically look to OPEC+ to announce cuts when the group meets. Without this, crude prices should fall.
Since the G-7 price cap of $60 a barrel on Russian oil took effect on December 5, it has added to OPEC+’s woes as it tries to rally an already depressed market on mixed signals on the demand from the main Chinese importer and fears. of an impending recession in the United States and Europe.
Although the Putin administration has publicly backed down from the G7 price cap, it hasn’t really been able to fight it.
And because they get less money for their oil now, the Russians are also shipping more barrels these days than the Saudis want. And those barrels primarily go to two destinations – India and China, which are the only two nations the United States allows to buy sanctioned Russian oil without question.
Russia’s increased exports not only spoil OPEC+’s goal of keeping production tight, but also hurt the Saudis, as India and China were also the biggest markets in Asia for the oil company. of Riyadh State. Saudi Arabia (TADAWUL:).
India bought an average of 1.2 million barrels of Russian Urals per day in December, 33 times more than a year earlier and 29% more than in November. According to a December 14 Reuters report, discounts for the Urals at Russia’s western ports for sale to India under some deals widened to $32-35 a barrel when freight n was not included.
Another Reuters report said China paid the biggest rebates in months for Russian ESPO crude oil in December, amid weak demand and low refining margins. ESPO is a quality exported from the port of Kozmino in the Russian Far East and Chinese refiners are the main customers.
If that wasn’t enough, a Reuters report last Friday said Russia’s oil shipments from its Baltic ports are expected to rise 50% in January from December levels. Russia loaded 4.7 million tonnes of Urals and KEBCO from Baltic ports in December. The January surge comes as sellers try to meet strong demand in Asia and take advantage of higher global energy prices, the report said.
The Saudis, for their part, have cut prices for their own light Arab crude to Asia to try to stay competitive amid ruthless undercutting by the Russians – who are believed to be their closest ally in the world. ‘OPEC+.
Separately, the Kremlin said in a statement Monday that Putin had a phone call with Saudi Crown Prince Mohammed Bin Salman earlier in the day “to discuss cooperation within the OPEC+ group of oil-producing countries to maintain oil price stability,” Reuters reported. . No details were given.
The G7 will have two more price caps coming into effect Feb. 5 on refined petroleum products from Russia. No one knows what effect this will have on the Kremlin.