EU’s Russian Oil Ban to Redirect Trade Flows, Bolster Prices –Fitch
An agreement to ban Russian seaborn exports of oil and oil products reached by the EU this week will redirect trade flows and keep prices high, at least in the short term, Fitch Ratings says.
Oil delivered from Russia by pipeline is temporarily exempted from the ban to allow land-locked countries, such as Hungary, Slovakia and the Czech Republic, extra time to substitute Russian imports with oil and products from other sources.
The agreement, part of the sixth package of EU sanctions against Russia, bans purchases of Russian seaborn oil and oil products (about four million barrels per day (MMbpd), or two-thirds of Russian imports into the EU).
It also contains pledges from Germany and Poland to wean off Russian pipeline imports by the end-2022, which should ultimately cover 90% of all Russian oil and products imports into the bloc, reducing them to below 0.5MMbpd. Many details of the agreement are yet to be disclosed.
“This ban will have a significant impact on global oil trade flows, with about 30% of EU’s imports needing replacement from other regions, including the Middle East (Saudi Arabia and the UAE have sustained production spare capacity of about 2MMbpd and 1MMbpd, respectively), Africa and the US.
“Russia should be able to redirect some of the displaced volumes into other countries, including India and China, which so far have been increasing Russian oil purchases. The use of spare capacity and Russian oil redirection should lessen the pressure on the global oil supply in the medium term.
“However, we believe that redirecting of all Russian oil and products volumes may not be possible due to infrastructural limitations, buyers’ self-restrictions and logistical complications, such as potential restrictions on providing insurance for cargos carrying Russian oil.
“As a result, we estimate that about 2MMbpd-3MMbpd of Russia’s oil exports, or about a quarter of the country’s oil production, may disappear from the global market by end-2022”, Fitch said.
The high oil price environment, further propped up by the EU ban on Russian seaborn oil import, benefits most oil and gas producers.
However, the positive impact may be tempered for companies operating in jurisdictions that have implemented or are planning to introduce windfall taxes on the sector, such as the UK. READ: Fitch Says EU’s Russian Gas Phase-Out Feasible
“We rate oil and gas producers through the cycle and expect oil prices to moderate in the medium term, therefore the higher oil prices that we anticipate in 2022 will not trigger portfolio-wide positive rating actions”, Fitch stated.
# EU’s Russian Oil Ban to Redirect Trade Flows, Bolster Prices –Fitch
