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Russian oil cap could push oil price to $200 a barrel: SEB Group chief commodities analyst

16:19, 29 June 2022

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An oil pump against the map of Russia.
Lower Russian supply can boost oil prices to $200 - Photo: Getty Images

The imposition of a price cap on Russian oil could hit the country’s crude exports, driving the oil price cost the worldover, from a “lazy” $117 per barrel to over $200 a barrel, warns the chief commodities analyst for SEB Group.

While “neat on paper”, the proposition “sounds like a recipe for disaster right now,” said Bjarne Schieldrop in a note published on Tuesday, 29 June.

The Group of Seven nations (G7) have announced they are considering slapping a price ceiling at which buyers can purchase Russian oil and gas. The move aims to “sharply” reduce Russia’s revenues due to the ongoing war in Ukraine.

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“If Russia had been a small exporter and it had been a buyers’ market for oil then the strategy would have worked beautifully. But that is not the case,” Schieldrop wrote.

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The Russian Federation “is the world's biggest fossil fuel exporter. And... the oil market is today a seller's market, not a buyers’ market,” Schieldrop noted.

“Assume Russian crude exports declined by 2 (million) bl/d as a result of the price cap regime and a Russian ‘seller's strike’, then (major producers) Saudi Arabia, UAE and Kuwait would immediately have to max out their reserve capacities, while the International Energy Agency’s members would have to continue to empty their (strategic reserves) beyond the planned horizon in the autumn.”

“G7 countries are today actually praying that Russian oil exports will not go down. Because if they do then the oil price will spike from current lazy $117/bl to instead above $200/bl.”

‘Gas prices to remain high’

Petrol prices could remain elevated because of higher oil prices and because the world is running short of crude refining capacity, multinational oil and gas explorer Shell's global chief executive Ben van Beurden said earlier Wednesday.

Speaking at a press conference in Singapore, Beurden said lower refining capacity means refiners cannot meet the demand for transportation fuels like petrol and diesel even if oil supplies improve, according to this report in The Straits Times.

“…the global refining system is running flat out, and there is not much you can do about it," Beurden added.

United front fights Moscow

The G7 comprises of Canada, France, Germany, Italy, Japan, the UK and the United States.

“By working together to limit the price of Russian oil, we will further strengthen the existing sanctions imposed by the G7 and our partners to make sure that (President Vladimir) Putin will not be able to profit from the higher global energy costs that have resulted from his invasion,” US Treasury Secretary Janet Yellen said on Tuesday.

“It is the top economic priority of the Biden Administration to lower energy prices for American business and consumers – and energy prices are a primary driver of today’s inflation. Limiting the cost of Russian oil will put downward pressure on global energy prices in a way that dampens the impact of Putin’s war on the U.S. economy,” Yellen added.

Crude oil is the Federation’s top export, accounting for $123bn of its export revenues, data for 2019 shows. Next on the list are refined petroleum products – things like petrol and diesel – at $66.2bn, gas at $26.3bn and coal at $17.6bn.

 

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