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Small Crude Build Sends Oil Lower

Small Crude Build Sends Oil Lower

Oil prices continued to fall…

U.S. Mulls Fresh Sanctions On Russian Oil

Russia

Russia’s oil firms are demanding penalty clauses and payments in euros instead of U.S. dollars in their annual renegotiation of oil supply contracts with Western crude buyers, as the Russian oil industry is seeking to protect itself from possible new U.S. sanctions on the sector, Reuters reports, citing a number of industry and trading sources.

Buyers, however, are unwilling to yield to the demands.

U.S. lawmakers have been discussing extending sanctions on Russia to energy and oil projects and sovereign debt markets in what Republican Senator Lindsey Graham called a “sanctions bill from hell.”

Just yesterday, the U.S. Department of the Treasury imposed additional sanctions on officials and entities supporting Russia’s occupation of Crimea, designating three individuals and nine entities for profiting from the annexation of Crimea.

None of the targeted companies are oil companies in this round of sanctions, but the Russian oil industry has apparently grown concerned about sanctions coming its way.

According to Reuters’ sources, Gazprom Neft and Surgutneftegaz, Russia’s third- and fourth-largest producers, respectively, are having very tough talks with trading houses and Western oil majors who buy their oil. Looking to protect themselves in the 2019 annual contracts from possible sanctions, the Russian firms have demanded clauses such as penalties to be paid if buyers fail to pay, sanctions or not. For most of the Western buyers, these demands are unacceptable, and talks with Gazprom Neft and Surgutneftegaz have been progressing painfully, according to industry sources who spoke to Reuters. Some have reached compromises—one large European buyer has agreed to pay in euros in exchange for Surgutneftegaz dropping the penalty clause.

Related: The Energy Investment Model With A Glaring Problem

Earlier this week, Reuters reported that Russia’s biggest oil producer Rosneft was also in a deadlock with Western oil buyers over the 2019 contracts. The major buyers are fiercely opposing penalty clauses, trading sources told Reuters.

Commenting on Gazprom Neft and Surgutneftegaz’s impasse with buyers, a source with a big trading house told Reuters: 

“They basically said - sanctions don’t matter. Buyers have to find a way to pay, or to return purchased goods, or pay penalties.”

By Tsvetana Paraskova for Oilprice.com

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  • Donald on November 12 2018 said:
    Penalties end after Russia evacuates Donbass and Crimea. Both regions of Ukraine are scorched earth without jobs, schools, electricity, coal, postal service, government, banks, water. Russia signed a NATO treaty guaranteeing the borders of Ukraine in return for Ukraine divesting its huge supply of nuclear weapons. NATO will honor the treaty for a hundred years. The Russian invasion of Ukraine cost Russians extreme poverty. Some Russian states 40% of the population earn less than $200/month. The Russian Army is pinned down in Donbass unable to maneuver because NATO counter battery artillery and antitank weapons are accurate to five meters on the first shot and at distances up to 20 miles. The best cure for sanctions is for Russia to vacate Ukraine and honor the treaty they signed. Otherwise the vice will tighten for the next hundred years.

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