The European Union’s ban on Russian oil products set to come into force on February 5 could lead to a 1 million barrel per day drop in Russian crude oil output for the New Year, commodity analysts for UBS told Insider on Monday.
"We expect the European ban on seaborne Russian crude and refined products (to come into force on February 5) to result in a drop of Russian production of at least 1 million barrels per day in 2023, with Russia having difficulties in finding alternative markets," UBS’ Giovanni Staunovo, told Insider.
While Russia has been rerouting crude volumes to Asia, traders are finding it increasingly challenging to secure the necessary insured vessels to carry sanctioned Russian crude. As of the first week of December, Moscow was sending nearly 90% of its crude to Asia.
Moscow has also warned it could cut production by up to 700,000 bpd as it responds to the $60/barrel price cap on its oil implemented by the G7 in December.
Another analyst, Saxo Bank’s Ole Hansen, told Insider that global supplies will experience more tightness, leading oil prices to top $100 bpd this year, once Chinese demand improves.
"Following a soft first quarter, I see the price of Brent returning to a $90-100 dollar range. What happens later will depend on the strength of an incoming economic slowdown," Saxo told Insider.
Russia boasts the world’s third-largest refining industry, and the EU ban that goes into effect on February 5 is expected to have a fairly significant impact.
According to Energy Intelligence, Russian refineries are already struggling with a labor shortage due to conscription for Putin’s war on Ukraine. Energy Intel analysts expect to see a further decline in Russian refining margins this year as they pay more for tankers to export further, predicting a 600,000-bpd drop in refining throughput in 2023, year-on-year.
By Charles Kennedy for Oilprice.com
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