“A simple shaking of the air”: what the new EU sanctions mean for Russian oil

The decision by the European Union to impose cap prices on Russian oil exported by sea almost coincided with the decision of OPEC+ to continue cutting production.

“Despite the fact that the OPEC + decision sounded very loud - to cut production by as much as 2 million barrels per day, starting in November, and to keep the bar of such a reduction in the next six months, strictly speaking, this does not change anything for Russia,” Alexey Gromov notes.

According to him, the OPEC + countries already today do not use more than a million barrels of production within the quotas allocated to them. Even in the face of such a declared sharp reduction in production, Russia still has the opportunity to increase production within the framework of this reduction, the expert argues. “Now, within the framework of the OPEC + quota, Russia has the right to produce up to 11 million barrels of oil per day, and it produces about 10 million,” Gromov explains. - As a result of the announced cuts, Russia's quota will decrease to 10.5 million barrels, maybe to 10.4 million barrels. Thus, Russia can potentially increase production by another half a million barrels, so the OPEC + decision does not infringe on it.”

“Of course, this is a step forward, because we now see that the EU is not just talking about the introduction of an oil price ceiling, but is already defining the boundaries for its introduction: stipulates that the oil price ceiling does not apply to pipeline deliveries of Russian oil, oil transportation from the Sakhalin-2 project, and, in principle, the outlines of this decision are already visible,” Gromov says.

The real entry into force of the European embargo, along with the ceiling on oil prices, of course, will complicate the delivery of Russian oil to third countries and Russia will lose the European market to some extent, the expert mentions.

In his opinion, by the beginning of 2023, Russia will face a reduction in oil exports by about 20% from the level of the current year - by 1.2-1.3 million barrels per day, with the total export of Russian oil, which previously reached a maximum level of 5.5 million barrels per day.

American oil will definitely not be a panacea for the European oil market, Gromov is sure.

“It is lighter, and its quality and physical and chemical properties are not suitable for all refineries in the Old World,” he says. - Unlike gas, which in the future the United States will be able to supply massively to Europe in five or six years, this cannot be said about oil. European refineries need heavier, more sour crude that matches Russian Urals and Middle Eastern oil. Therefore, American oil will partly find a home in Asia, where possible, and will cover the needs of the domestic market.”

“Middle Eastern oil in Europe will be in demand and, most likely, they will be able to sell it even with a premium in relation to the price of Brent,” the expert believes. - Well, Russian oil will be in demand in Asia, since significant volumes of Middle Eastern oil will leave there. So, the beneficiaries of this whole sanctions story will be China, India and a number of other countries in Southeast Asia.”