Last week, the G7 countries agreed at a summit meeting to cap the price of Russian oil to further reduce cash flows for Moscow, which uses it to fund its war machine. Since a sudden European embargo would cause crude prices to soar again, the Americans have proposed a complex capping mechanism that – since direct price intervention is impossible – would involve carriers and private insurers. Tankers transporting oil from the Urals will no longer be able to be insured unless they buy Russian oil loaded in the hold at a price below a certain price, which will be slightly higher than the cost of production. Japanese Prime Minister Fumio Kishida has proposed capping the price at about half the current price, around $50 to $60.
Japan, the United States, Canada, Great Britain, Germany, France and Italy are currently considering implementing this plan. Today, the European Union, which in June decided on a gradual embargo on Russian oil, still sends hundreds of millions of dollars a day to Russia to buy its black gold. The West intends to cut these financial flows without returning oil prices to flirt, as in March, at the beginning of the war in Ukraine, from their records of 2008, to almost 150 dollars per barrel, after the decision of the United States and the Kingdom to ban the import of Russian oil.
The West’s new plan for sanctions against Russia may, however, turn against them again, according to the American bank JPMorgan; it’s a risk “the most obvious and the most likely. »
Commodity analysis chief Natasha Kaneva’s team warns that Russia could decide to retaliate by cutting production by 5 million barrels per day without any consequences. “excessive damage” on its economy, given its budgetary situation “firm”. Such a response from the Kremlin will cause a historic boom in oil prices, which may reach levels “stratospheric” 380 dollars per barrel, according to the calculations of a bank that does not believe in a global recession.
“We now estimate that oil prices move about $25 a barrel for every 1 million barrels of change in supply or demand, almost double the 15 that prevailed before the invasion. Covid, early 2020″, can we read in the note sent last week. For example, if Russia pulled another 3 million barrels per day from the market (just over 3 million are already under sanctions, partially offset by increased production in other OPEC+ members), North Sea oil prices would reach $190 per barrel (+ $75 compared to at current prices) before rising further due to a threshold effect in the worst-case scenario of a 5 million barrel cut.
Russian Deputy Prime Minister Oleksandr Novak had already warned last week that attempts by the G7 (which also seeks cooperation with China and India) to cap Russian oil prices could cause an imbalance in the market and push prices up.
On Monday, Brent rose 2% to around $114 per barrel (+45% YTD). In Norway, a producer country, a strike by energy sector workers is expected to shut down three new hydrocarbon fields. According to the Norwegian Oil and Gas Association, this will lead to daily oil production losses of 130,000 barrels.
“Lack of buffer stocks […], with low stocks compared to pre-pandemic levels […], makes the market vulnerable to unplanned supply disruptions such as spiraling protests in Libya or an active hurricane season in the Atlantic that could potentially shut down refineries in the Gulf of Mexico.”we warned last week at JPMorgan.