On October 6, 2022, the European Union adopted its latest package of sanctions against Russia due to its illegal annexation of Ukraine’s Donetsk, Luhansk, Zaporizhzhia and Kherson regions. In response, the Kremlin announced that it will cut oil production by 500,000 barrels per day in March.[0] The price of Brent crude rose in morning trading from $84 to $86 per barrel.[1]
The G7, EU and Australia also set two price caps for Russian petroleum products, with a $100 per barrel cap on products that trade at a premium to crude, like diesel, and a $45 cap for discounted products like fuel oil.[2] This mechanism would allow European insurance and shipping firms to continue offering their services to shippers carrying Russian oil products to other regions as long as the fuel was purchased at or below the agreed cap level.[3]
The EU has already banned Russian coal and most crude oil, while Moscow has cut off most shipments of natural gas.[0] Last year, Europe imported around 700,000 barrels per day of Russian diesel, making up half of its total imports of the fuel.[4]
The new EU ban will apply to anything produced from Russian crude oil.[5] It is believed that the ban could boost Russian oil sales to China and India, as both countries are large refiners and it is legal for them to import Russian crude, refine it and send it back to Europe.[6]
The European Union is also working on a tenth round of sanctions against Moscow, which is expected to be introduced by the first anniversary of Russia’s invasion of Ukraine on February 24. Meanwhile, oil traders have warned that Russia may take further action depending on the market situation and its reaction to the price caps.[7]
0. “Russia to Cut Oil Production, Sending Prices Higher” The Wall Street Journal, 10 Feb. 2023, https://www.wsj.com/articles/russia-to-cut-oil-production-sending-prices-higher-5697a8e8
1. “Brent Oil Jumps Above $86 After Russia Says It Plans Output Cut” Bloomberg, 10 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-10/brent-oil-jumps-above-85-after-russia-says-it-plans-output-cut
2. “Exxon Mobil Stock Breaks Out On Russia’s 500000 Barrel Threat | Investor’s Business Daily” Investor’s Business Daily, 10 Feb. 2023, https://www.investors.com/news/exxon-mobil-stock-breaks-out-on-russias-500000-barrel-threat/
3. “Is the EU ready for life without Russian diesel?” DW (English), 3 Feb. 2023, https://www.dw.com/en/is-the-eu-ready-for-life-without-russian-diesel/a-64600376
4. “EU ban on Russian oil imports comes into force” Euronews, 6 Feb. 2023, https://www.euronews.com/my-europe/2023/02/06/eu-ban-on-russian-oil-imports-comes-into-force-as-west-steps-up-measures-against-moscow
5. “Oil prices climb after Russia announces production cut of 500,000 barrels per day in March” MarketWatch, 10 Feb. 2023, https://www.marketwatch.com/story/oil-prices-climb-after-russia-announces-production-cut-of-500-000-barrels-per-day-in-march-27436b53
6. “Asia prepares for two-way oil product flows as EU ban, price cap take effect” S&P Global, 6 Feb. 2023, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/020623-asia-prepares-for-two-way-oil-product-flows-as-eu-ban-price-cap-take-effect
7. “Oil a big winner on the day as Russia says that it would cut production in March” ForexLive, 10 Feb. 2023, https://www.forexlive.com/news/oil-a-big-winner-on-the-day-as-russia-says-that-it-would-cut-production-in-march-20230210