Earlier this week, the Financial Times report Denmark was considering starting and potentially blocking Russian oil tankers carrying crude in its waters, in the EU’s latest attempt to impose price caps on oil exports from Russia. Also this week, White House Energy Security Advisor Amos Hochstein said: Said According to Bloomberg, the US federal government intended to target Iran’s oil industry more harshly and tighten the noose on sanctions against Iran. The aim is to cut Iranian oil exports by about 1 million barrels per day without disrupting prices, Hochstein said.
Oil prices have fallen recently, mainly on the back of similarly weak economic indicators in the United States and China, the two largest oil markets. This is good for both the US and the EU, but the situation will only change if there is talk of additional oil sanctions and their enforcement tonight.
To be fair, the day after the FT report on Denmark was published, an EU source said: Said Reuters reported that the $60.00 price point that Western governments believed would allow them to achieve two mutually exclusive objectives: keep Russian oil flowing into the world market and reduce the country’s revenue from it. He said Russian oil tankers would not be targeted in the bloc’s plan to better enforce price caps. export.
In fact, it would have been easy to enforce a cap if all oil prices, including Russia’s main oil Ural, had been naturally low. However, when prices started to rise again, Russian oil prices also rose. Cap designers have ignored the topic for months, but the FT reported earlier this month. quoted A senior EU official said Russian crude was in fact rarely sold below the cap.
The official told the FT that the situation could not be allowed to continue and the EU would step up its crackdown. A report on Denmark’s inspection and lockdown plans came the next day. Related: ExxonMobil vs. Google: Benefits and Perceptions Explained
While the EU debates how to approach this stricter enforcement, the US took action: The Treasury Department this week imposed sanctions on three Emirati shipping companies for transporting Russian crude oil sold for more than $60 a barrel.
“Shipping companies and vessels participating in Russian oil trade using Price Cap Coalition service providers should be well aware that we are responsible for compliance,” said Deputy Treasury Secretary Wally Adeyemo. Stated.
Tightening sanctions controls could mean a reduction in the amount of Russian oil spilled overseas. As a result, income from exports will certainly decrease, but of course oil supply will also decrease. Perhaps this is why the EU was dissuaded from proceeding with the Danish plan. One-third of Russia’s oil exports pass through the Baltic Sea and Danish waters. Reducing this one-third of her price will definitely have a significant impact on the world standard price.
Meanwhile, the United States has also targeted Iran’s oil industry in response to Iran’s support for Hamas. However, what is interesting is that Hochstein said that he thought:The best story about Iran’s revenue is that it keeps exports at a low level while also ensuring prices are low. ”
This certainly sounds like the perfect scenario from the White House’s perspective. Unfortunately, this is a case of having your cake and eating it too, and sounds similar to the G7’s price cap strategy for Russian oil.
Oil traders are ignoring these reports and instead focusing on U.S. retail sales and Chinese refinery activity. The former fell for the first time in seven months in October, while the latter slowed primarily as refiners used up their fuel export quotas.
Traders also noted that EIA’s latest weekly inventory report showed an increase in stocks, which could mean supplies could be tight soon. . It’s a remote location. Based on the latest information from the EU and the US, that’s not that far off. Imposing sanctions on both Russia and Iran will effectively reduce supply. And if that happens, it will be installed on top of the curb that already exists.
Of course, it is doubtful whether anything other than imposing sanctions on a few shipping companies will actually be attempted. As mentioned earlier, both the EU and the US need lower oil prices, not higher oil prices. The EU is already struggling with energy bills, and the US is looking to buy oil for its Strategic Oil Reserve after nearly running out of oil last year.
But if sanctions enforcers decide to spend money freely, global oil supplies could become significantly tighter. ING analysts say that even removing 500,000 to 1 million barrels a day of Iranian oil from the market would significantly tighten supply. Said In this week’s notes.
To offset this potential loss, exports from Venezuela would need to increase, without taking into account supply losses from Russia, and the Biden administration recently eased sanctions for this very purpose. Sanctions and their enforcement seem to have become an instrument of energy policy rather than a means of punishing so-called adversaries. The problem with this tool is that it has double edges. ”
Written by Irina Slav for Oilprice.com
