Self sanctioning reduces Russian crude oil exports by ~2.5mb/d

serts/iStock via Getty Images

Following significantly tighter financial sanctions announced over the weekend, and an exodus of majors from Russia, crude traders and refiners have paused purchases of Russian oil and oil products. This is according to an assessment of shipping data and conversations with traders shared by Energy Intelligence.

Following sanctions, price discounts for Russian crude appeared immediately, with Platts quoting Urals crude ~$20 below dated Brent. As the week rolled on, crude tenders for Russian volumes simply dried up. Energy Intelligence estimates that "self sanctioning" has reduced Russian exports by ~2.5mb/d.

In response to tightening crude markets, Western governments coordinated a 60mb release of strategic reserves. OPEC+ stuck to a previous production agreement, likely hoping to retain spare capacity for when and if Russian exports are weaponized. The US and Canada announced plans to cease Russian oil imports, though both countries are net exporters of oil and oil products.

Tighter oil markets would be likely to support oil commodity ETFs like the United States Oil Fund (NYSEARCA:USO). Higher prices would also benefit producers like Exxon (NYSE:XOM) Chevron (NYSE:CVX) Shell (NYSE:SHEL) BP (NYSE:BP) Pioneer (NYSE:PXD) and Canadian Natural (NYSE:CNQ). Refiners like Valor (NYSE:VLO) and Phillips (NYSE:PSX) could struggle in the near term, as feedstock costs rise and demand growth expectations fall.

If the 2.5mb/d of self sanctioning proves accurate, it's likely to be viewed as temporary. Majors, traders, refiners and banks alike are scrambling to understand post-sanction protocols, and preferring to step out of the market rather than risk running afoul of the new rules. However, if the 2.5mb/d is kept off of global markets for an extended period (weeks or months) it is sure to have a dramatic impact on prices. Tacking 2.5mb/d onto existing deficits would overwhelm global spare production capacity and require prices to rise to a point where demand falls.

Comments

[SmokeyJoe50]

High oil prices are temporary, just like Powell and "the Big Guy" said inflation was temporary.

[ManWithoutName]

I'm waiting for Biden to show up in a cardigan next to the fireside and have a chat with us about high inflation, oil embargoes and a "crisis of confidence".

[GR Value]

@Texdude You can't create the seeds for inflation in 13 months by the way, that's just common sense 101. You can argue about responses or lack thereof, but you can't logically say that inflation was created only from Jan 20 2021-present, or 13 months. It's mathematically impossible to create fertile ground like that it takes years and decades.

But by all means, let's continue ignorance to justify our own beliefs.

[cross]

@Texdude I can see the cardigan and the fire but most likely he would devote the chat to criticism of traitor republicans who love putin and hate America; do you know of any?

[ManWithoutName]

@GR Value When you decide to dump another $2T of demand into an economy that is already supply side constrained, tell me your understand how prices react under Economics 101.

[Tellurium128]

I remember one of Bill Clinton's friends trading in Iranian oil against sanctions and became a billionaire. Marc Rich.

[auto44]

@Tellurium128 He was also pardoned by Clinton on his last day in office.

[felixthemicha]

Government officials don’t care about the consumer they want Company money for political purposes

[Doctor_ECE_Prof]

"Western governments coordinated a 60mb release of strategic reserves. OPEC+ stuck to a previous production agreement, likely hoping to retain spare capacity for when and if Russian exports are weaponized."
60 mb = 6 days times Russian total production per day = 24 days times this 2.5 mb reduction
We are facing a big problem. If the producers find that the higher price sticks without damage to the consumption rate, the higher price will stay on. If I were an oil producer, I will try to use this opportunity to bring the best bucks for the depleting natural resources. Remember, these are not made overnight but perhaps in thousands and millions of years and we are on the path to deplete all in few centuries.
After that we will all live happily in a Tepee and use horseback (or camel or in some countries even on other human beings) ride for our trips to buy that cigarette pack or a six pack beer on sale in a store 30 miles away :)
And to those who will say we can use renewable resources, the infrastructure needed (solar cell, batteries and so on) doesn't grow on trees!

[JackCr]

And then oil goes down?

[JPBB51]

What about Natty Gas?

[User 21359971]

Interesting

[Smreka]

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[Eauz]

That's release won't last long. Why would you waste that when it won't have any impact? This will end up impacting Western nations much worse. Who are the people making these terrible decisions?

[n00binvest19]

@Eauz the people that you voted for remember? Thanks dominion

[AlexS]

@Eauz They are people whose first thought is, how will it help me with headlines in the news media.

[TheOldHand]

@Eauz Politics is about "appearance" not "reality".

[aochamp]

Unbelievable picture of some 15 tankers in a relatively small space

[TheOldHand]

@aochamp Yeah, at first glance I assumed they were container ships waiting to be loaded somewhere in China, then I took a second look. Astonishing.

[ColoradoRay]

@aochamp It looks like they are all empty to. They're sitting high in the water.

[aochamp]

@ColoradoRay While you may be correct, why would they be so packed together unless they are waiting to unload?

[User 3434471]

Most don't understand what's happening, or why Russia does what it does, but it's easy if you review a few basic facts.

1. Putin does invasions when oil prices are high, because most of Russia's military budget comes from what they make on selling oil and gas.
August 2008: Oil at $118 per barrel. Russia invades Georgia
February 2014: Oil at $108 per barrel. Russia invades eastern Ukraine and Crimea
February 2022: Oil reached $97 per barrel, the highest nominal price since September 17, 2014.

2. Oil and gas prices go up because of bad policies limiting oil and gas development in North America.

3. Russia donates a significant amount of money each year to any group trying to block fossil fuels in North America.

4. Putin's ideas on foreign policy come from the USSR and long-dead Czars. His two heroes in life are Josef Stalin and Peter the Great. He's a totalitarian kleptocrat rather than a totalitarian communist, but he shares their views of Russian imperialism and a massive Russian empire. That's all the Warsaw Pact really was, albeit dressed up with some Marxist ideas on the side. He's an evil guy straight out of a movie script hell bent on conquering or non-violently subduing Eurasia and Eastern Europe. Description of Putin's evil world views: torontosun.com/...

5. Putin is extremely adept at "active measures" against the west as practiced by the KGB, because he was a KGB Lieutenant Colonel in Germany. This includes feeding the western media, the Trump camp, the Democrats, the FBI, the intelligence agencies, mentally unstable people screaming at the sky over the bad orange man, mentally unstable Q followers talking about Pizza parlor pedos and everyone else whatever lies he needed them to believe to create total chaos in America for several years to destabilize the country. He made them all look like fools as they took pot shots at each other, did endless investigations amounting to politically motivated persecution and generally caused extreme political turmoil. Description of Active Measures: www.marshallcenter.org/...

6. Russia under Putin is not pro-Trump or the enemy of just the Democrats but the sworn enemy of America and all western democracies. Why? Same reason as his predecessors for the last 100 years. They like being all-powerful tyrants and view our way of life as a threat that could take root among his own very oppressed people and surrounding countries he wishes to rule and exploit. There is no lie the KGB-minded Russian won't tell to achieve the goals of prevailing against the west. It's how they were raised and trained their whole life. They don't think like the American family in the Norman Rockwell painting. They think like psychopathic ex-KGB Russians. Putin has a thousand internet trolls posting comments on social media, and I do not doubt they are posting on this site today. They are here to deceive and cause division. They despise America and always will.

7. Peace will only be maintained through military and economic superiority and through strong alliances with the entire free world. We either win or we lose against these people. There is no peaceful co-existence possible apart from avoiding high intensity conflicts. Not until after Putin is replaced by someone much better. This is a zero sum game against eastern tyranny that America and the free world must realize is happening and have realistic plans to win, or else we will lose.

8. It's high time for the first-string starting players of the American and free world public to step back into the public sector as was the case in World War 2 and the 1950s. The practice team scrubs have fcked things up enough since they took over. The big money will still be there to be made when the New Cold War is over.

[yhoomajor]

@donfdraper Wrong on all points.

We are headed for De-Dollarization in the world. Countries will stop relying on Delloar as reserve currency. They now kno wthat US can just seize their US Dollar reserves whenever they want.

US Dollar has proven to be highly ILLIQUID when a nation runs foul of US masters (ask Russia, Iran, Venezuela, Cuba and so on)

[PanicFirst]

@yhoomajor Powell was kind of setting it up yesterday... There will be more than one reserve currency.

[User 3434471]

@yhoomajor The free world will win and your tyrannical kleptocratic war criminal regime will lose. Putin thinks he's taking you back to 1951. He's actually taking you back to 1991.

[elwalle]

doubtful story is accurate

[JPBB51]

@elwalle Ah ... come on.
I believe everything I see and read on the internet.

[PapaWhisky]

@elwalle

Surneftegaz has offered one million tonnes of Urals at Novorossiysk so far this month

That’s 8 million barrels

They sold zero

Is only the third…

[Maobama]

China will buy crude. They will also buy nickel, cobalt, copper, palladium, platinum, etc all at a discount. They will then process, refine, finish etc and sell it all back to everyone netting large profits on the transactions...

How will they pay? Yuan, barter, bitcoin, etc

[Middle American]

@Maobama They'll pay in dollars (which they'll have a lot more of). They have said they aren't participating in sanctions.

[Quisp]

I don't see oil demand as elastic and affected by prices over the short to mid-term. And production capacity takes time to spin up in response to favorable pricing. Only with additional production capacity will there be pressure on price.

[raven51c]

The headline should read by instead of buy.

[PapaWhisky]

Tankers won’t load it

Bankers won’t finance it

Insurers won’t insure.

Doesn’t matter how cheap it is

[vooch]

@PapaWhisky

The spice will flow

[Remdog420]

@PapaWhisky China already has a deal and system set up to settle oil sales with Russia, in Yuan. They have been buying Iranian oil for years. These sanctions will lead to Saddam Hussein goal that was a primary driver for two wars in the Mideast; partly why we toppled Libya (African Dinar would of done this as well). Financial system has declared war and Russia, China, have had 30 years to plan for it.

[Quisp]

@PapaWhisky Agree and would suggest a change in the order somewhat. Bankers won't finance it because insurers won't insure it. As a result, tankers won't load it.