Russia’s ability to maintain oil production levels, while also finding new export markets has been a topic of debate over the past few months. With the cap on Russian oil though, things are starting to become more complicated, especially given the latest price fluctuations. In its latest weekly report, Gibson said that “it has been approximately five months since the imposition of the G7 price cap on Russian crude exports. The G7 has since agreed to keep the price cap at $60/bbl instead of lowering it further as some had called for. This comes as crude prices across the board are rising, with most mainstream grades trading above $80/bbl. Arguably, the price cap policy has been successful in ensuring the continued flow of Russian oil to the market and limiting energy price volatility whilst also lowering export revenues for Russia. This was possible with Urals prices trading in the $45- $55/bbl range but recent developments in oil prices have seen Urals assessments pricing above $60/bbl, this in theory putting the trade of Russian seaborne crude out of compliance with the terms of the price cap policy. This could reduce the export potential of Urals cargoes to buyers mostly in India and China by squeezing the pool of tanker owners willing to engage in this trade going forward”.
According to Gibson, “whilst for those willing to continue in this market, they risk entering a potential grey zone of compliance. However, for now there are no signs of tankers leaving the Russian market and entering the mainstream sector. To the contrary, the data highlights a growing number of western players seeming to be gaining confidence to lift Russian cargoes. This suggests that exporters are trading within the price cap policy for at least a portion of their oil exports entering the market. Whether we see additional increases in Russian crude prices above the price cap will be primarily driven by oil supply and demand dynamics”.
“However, Russia has tried to influence this through its own production policy. Russian officials had previously announced a 500 kbd cut in crude production from February levels from March until the end of 2023 to support prices and boost export revenue. Additionally, some Russian officials have indicated that they believe some exporters have been discounting export barrels too heavily or misrepresenting prices to reduce their tax exposure and would like to see prices rise to recoup this lost revenue. In terms of the data, The IEA estimates that Russia’s March output fell 290 kbd to 9.58 mbd, and OPEC+ cuts are adding further support. This could provide extra support for Urals prices and further make their trade unviable for more risk adverse players currently engaged in this trade”, Gibson said.
The shipbroker added that “when it comes to actual seaborne crude entering the market, Russian crude exports have thus far remained robust. The data shows shipped volumes were 5.33 mbd in March, which averages to just over 5 mbd so far in 2023 versus 4.6 mbd in 2022. In addition, the US government has recently encouraged several large trading houses to ship more Russian crude in order to increase global oil supplies, which may increase the quantity of Russian crude being marketed as well as boosting these volumes. However, this could also depend on the ability of India and China to marginally increase their imports of Russian crude further”.
“Overall, the price cap has so far been successful in reducing Russia’s export tax revenue, while ensuring barrels continued to flow. However, going forward, this success could be at risk if owners cannot viably engage in Russian trade whilst maintaining compliance with the price cap. Therefore, the next challenge for Russia could be maintaining production levels to ensure prices remain within the price cap limits to keep barrels flowing. Despite their very public opposition this would allow Russia to maintain both the market share gained over the previous months as well as to protect the longer-term capacity of its upstream oil sector and its economic value to the stat”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide