EU needs to shield consumers from fallout of Russian oil ban: Gneiss
The EU will need to introduce measures to shield businesses and consumers from the fallout of its embargo on Russian oil, Doug Rycroft, director at Gneiss Energy, warned in a research note on June 10.
The embargo is set to immediately have an impact on 75% of Russian oil imports into the EU, and by the end of the year, this will rise to 90%. The remaining volumes will go towards countries in Central Europe that have no realistic alternative to Russian oil in the short term, whether because of a lack of infrastructure or the way their refineries are configured.
“In a seller’s market, there is a strong possibility of a surge in demand leading to further price inflation on top of current soaring prices,” Rycroft explained. “Meanwhile, another consequence is that Urals blend has been trading at a ca. $35 per barrel discount to other similar medium sour blends. Currently those alternatives are trading at parity with most global benchmarks, e.g. Arab Light is trading at ca. $113 per barrel.”
What is more, many refineries in Europe are configured for Urals blend, which has an API gravity of 30.6 and a sulphur percentage of 1.48.
“So replacing this with oil sourced from elsewhere could potentially lead to expensive reconfiguration of refinery infrastructure,” Rycroft said.
“This combination of a global rebalancing of oil flows, increased commodity prices and expensive reconfiguration activity will undoubtedly lead to higher pricing for oil products, impacting all sectors,” he continued. “We are already seeing the effects of this in the US, where refined product exports are soaring.”
“So whilst the EU has made the obvious and correct moral decision, further consideration will be needed to mitigate the impacts on businesses and consumers and, of course, the further burden this will place on our cost of living,” he concluded.