What a ban on Russian oil may mean for an already chaotic market
(Bloomberg) — Brent crude soared almost 18% to just shy of $140 a barrel at the open in Asia following news over the weekend that the U.S. and its European allies are discussing a possible ban on Russian oil exports.
It’s the latest development in an eye-watering surge in prices since the invasion of Ukraine, which has thrown energy markets into disarray and has the world bracing for a major inflationary shock. Here’s what analysts are saying about the likely implications of a prohibition on Russian oil.
S&P Global
“One of the greatest uncertainties is if and how the escalation of economic warfare between Russia and the West will impact the flow of oil and gas,” said Victor Shum, vice president at IHS Markit, under S&P Global. “NATO members currently buy more than half of the 7.5 million barrels a day of crude oil and refined products that Russia exports,” and inventories are already low in the U.S. and at record-low levels in OECD Europe and Asia, he said. “The multiple dimensions to this war will lead to unexpected disturbances and outcomes.”
ANZ Banking Group
Around 5 million barrels a day of oil supply, both crude sent by pipeline and seaborne cargoes, could be impacted by new sanctions, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd., said in an interview. “We are potentially already seeing the likely impact of those sanctions, and so this reaction could be viewed as a bit knee-jerk,” he said. Given that this is happening across the entire energy complex, Europe doesn’t have many options and is likely going to be paying a lot more for its oil and gas and other fuels over the short term, Hynes said.
JTD Energy Services
“With the surge in geopolitical tensions, uncertainty and anxiety, it would be quite difficult to accurately gauge the top of this rally,” John Driscoll, founder of JTD Energy Services in Singapore, said in an interview. “During the 2008-2009 financial crisis, demand destruction kicked in around $150 a barrel in July 2008,” he said. “However, this spike is supply-driven and may send prices beyond that level before we settle down.”
Vanda Insights
An embargo on Russian imports could push the energy markets into the worst chaos of our lifetimes, Vandana Hari, founder of Singapore-based Vanda Insights, said in an interview. “Nothing is fully priced in because all bets are off in this war,” she said. It is difficult to see the European Union agreeing to a ban of Russian oil imports, even if the U.S. goes ahead with this, as it would be “lights out” in Europe if Moscow retaliates, Hari said.
Citigroup
Exports of Russian crude and gasoil are already being shunned, Citigroup Inc. analysts including Ed Morse said in the bank’s quarterly outlook for commodities. Citi’s base case is for a drop of 500,000 barrels a day of Russian production and a 60 million barrel reserves release. Its bull case sees Russian output falling by 2 million barrels a day by end-2022, with around 120 million barrels of reserves releases from the U.S. and other nations. In Citi’s super-bull scenario, Moscow will only be sending its crude to China and there won’t be a response from OPEC+. The Russia-Ukraine crisis also means there’s a high probability of multiple disruption risks including damage to pipelines and ports, higher tanker rates, export frictions and cyber-attacks, it said.
