"Today, we are fully selling the entire volume of oil produced, however, as previously stated, we will not sell oil to those who directly or indirectly adhere to the principles of the "price ceiling," he said.
"In this regard, Russia will voluntarily reduce production by 500 thousand barrels per day in March. This will help restore market relations," Novak added.
Since the announcement this morning, the price of Brent Crude predictably surged, rising to $86.521/bbl, with April and May futures contracts closing as high as $86.59/bbl, but June and July only rising to $85.55/bbl and $84.94/bbl respectively.
The objective is fairly obvious: curtail production to force world oil prices up to a level where the $60/bbl price cap is no longer sustainable. With Urals Crude trading at a $28.47/bbl discount to Brent crude, Russia has to push the price of Brent to at least $90/bbl to put serious pressure on the cap, which it has already done briefly.
Yep. The worldwide potential supply capacity really isn't much greater than existing demand so there is a limit to the gap between Brent and the price for Urals. It's a contest of between how much economic pain can Russia endure vs the requirements of the most import dependant of the sanctioning nations.
The announcement itself sparked a roughly 2-3% surge in Brent Crude, which will probably translate into a similar uptick in Urals. This will put Urals crude just under the $60/bbl price cap.
If Brent rises above $90, the discount on Urals crude is going to have to increase above $30/bbl to maintain the cap, and the higher Brent goes the more challenging that becomes. Urals was trading at a discount of just above $20/bbl to Brent right before the cap took effect, which suggests that the cap and associated EU ban on seaborne imports of Russian crude account for about $8-10/bbl worth of discount on Urals crude.
If the cap and EU ban on refined products produces another $8-10/bbl worth of discount, the price caps might hold, even as Brent rises to $100--which many analysts are sure will happen as China's economy regains momentum.
However, the operative word in all of this is "if". Oil is a global market, and the production cuts have global ramifications, and variables involving economies from around the globe will determine how successful Russia's strategy will be.
The end of northern hemisphere winter will also reduce demand for the heating oil fraction which should reduce any gap between diesel supply and demand. But then spring is also planting season so agricultural diesel demand should rise. Then again, the fertilizer shortage (another effect of the Ukraine conflict) may limit the European agricultural activity.
All of which reinforces your focus on 'if'. Personally, I still think Europe is living on borrowed time (& money) and will be forced to drop the sanctions before Russia is greatly damaged - my 2 cents
Given that Russia's oil production was already reduced from where it was just before the invasion of Ukraine, and given that Russia in October acknowledged technical hurdles in ramping production back up again, the possibility that Russia may not be able to bring the idled production back online again cannot be dismissed entirely.
At the present time, the economic indicators suggest Europe is better able to withstand this economic attritional warfare (Russia's economy is already contracting, while Europe's is still problematic in that area), but it's not a huge difference. I'm not making any predictions on who will win.
But make no mistake about it--Russia is ALREADY greatly damaged. Economically and militarily, they are going to come out of this war in Ukraine substantially and possibly even permanently diminished. Economically, Europe is facing a similar fate, enough so that even framing the outcome as a "victory" could prove to be a tad presumptuous for either side.
Yep. The worldwide potential supply capacity really isn't much greater than existing demand so there is a limit to the gap between Brent and the price for Urals. It's a contest of between how much economic pain can Russia endure vs the requirements of the most import dependant of the sanctioning nations.
The announcement itself sparked a roughly 2-3% surge in Brent Crude, which will probably translate into a similar uptick in Urals. This will put Urals crude just under the $60/bbl price cap.
If Brent rises above $90, the discount on Urals crude is going to have to increase above $30/bbl to maintain the cap, and the higher Brent goes the more challenging that becomes. Urals was trading at a discount of just above $20/bbl to Brent right before the cap took effect, which suggests that the cap and associated EU ban on seaborne imports of Russian crude account for about $8-10/bbl worth of discount on Urals crude.
If the cap and EU ban on refined products produces another $8-10/bbl worth of discount, the price caps might hold, even as Brent rises to $100--which many analysts are sure will happen as China's economy regains momentum.
However, the operative word in all of this is "if". Oil is a global market, and the production cuts have global ramifications, and variables involving economies from around the globe will determine how successful Russia's strategy will be.
The end of northern hemisphere winter will also reduce demand for the heating oil fraction which should reduce any gap between diesel supply and demand. But then spring is also planting season so agricultural diesel demand should rise. Then again, the fertilizer shortage (another effect of the Ukraine conflict) may limit the European agricultural activity.
All of which reinforces your focus on 'if'. Personally, I still think Europe is living on borrowed time (& money) and will be forced to drop the sanctions before Russia is greatly damaged - my 2 cents
Given that Russia's oil production was already reduced from where it was just before the invasion of Ukraine, and given that Russia in October acknowledged technical hurdles in ramping production back up again, the possibility that Russia may not be able to bring the idled production back online again cannot be dismissed entirely.
https://newsletter.allfactsmatter.us/p/could-the-oil-price-cap-end-russian
At the present time, the economic indicators suggest Europe is better able to withstand this economic attritional warfare (Russia's economy is already contracting, while Europe's is still problematic in that area), but it's not a huge difference. I'm not making any predictions on who will win.
But make no mistake about it--Russia is ALREADY greatly damaged. Economically and militarily, they are going to come out of this war in Ukraine substantially and possibly even permanently diminished. Economically, Europe is facing a similar fate, enough so that even framing the outcome as a "victory" could prove to be a tad presumptuous for either side.