Oil prices shot up to over $112 per barrel early on Wednesday, rallying by 10 percent so far this week, as most of the Russian seaborne crude oil exports have become untouchable for buyers after sanctions against Russia for invading Ukraine.
As of 9:13 a.m. ET on Wednesday, just as OPEC+ finished their regular monthly meeting, WTI Crude was soaring by 7.02% to $110.67 and Brent Crude had surged by 6.94% at $112.25.
Despite the fact that the sanctions against Russia carve out energy and energy payments out of the SWIFT restrictions and bans, Russian producers can't sell their cargoes in tenders because no one is bidding, while many refiners—especially in Europe—are shunning Russian crude and scrambling for alternatives.
"Because of the banking sanctions we've estimated about 70% of Russian crude oil exports can't be touched. That's about 3.8 million bpd," Amrita Sen,
Director of Research at Energy Aspects, told CNBC's Pippa Stevens on Wednesday.
"Most European majors are not touching Russian oil, and only a few European refiners and trading firms are still in the market, but spiking freight rates and war insurance premiums are significantly complicating transactions," Energy Aspects told the Financial Times today.
After the Russian invasion of Ukraine, Russian cargoes have become toxic for most traders, insurers, and tanker owners, although the sanctions do not target energy exports. Some refiners and traders are uncertain how the bank credits would work; others are staying away to avoid reputational damage.
The global oil market is starting to see disruption in Russian supply, which could send oil prices as high as $150 per barrel, according to Energy Aspects' Sen.
While many major companies and traders are steering clear of Russian cargoes, Shell is reportedly going forward with buying Russian oil and gas, a source told Bloomberg on Wednesday, adding that Shell would comply with any changes in regulations.
By Tsvetana Paraskova for Oilprice.com
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So far Russia hasn’t retaliated against US and EU sanctions against it. But there may come a point when it may decide to turn the table on those imposing the sanctions and stop all its oil and gas exports to the world with the exception of China. This will send oil and gas prices skyrocketing and will inflict a huge damage on the global economy particularly the United States’ and the EU’s economies.
The United States is the world’s second largest importer of crude oil after China importing currently an estimated 9.0 million barrels a day (mbd). Therefore, its economy is the most vulnerable among major economies to rising oil prices and oil crises.
The EU depends on Russian gas supplies for more than 40% of its needs and on oil for 30% of its needs. A halt of Russian oil and gas would worsen further an already damaging energy crisis in the EU and reduce economic growth in the EU to zero. Germany will be the biggest loser since it depends on Russian oil and gas supplies for 65% of its needs.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London