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Oil prices will depend on Putin after he destroys his key market: Yergin

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  • The EU ban on Russian oil transported by sea came on Monday, alongside a price cap of $60 a barrel.
  • Putin has “destroyed its most important market for its oil” because Europe no longer wants it, said Daniel Yergin.
  • Crude prices over the next few weeks will depend on what Russian and Chinese leaders decide, the expert said.

Europe’s tough sanctions on Russian oil come into effect on Monday – meaning Vladimir Putin has essentially killed off Moscow’s most important market for its crude, according to energy expert Daniel Yergin.

The European Union’s ban on seaborne imports takes effect alongside a widely expected price cap of $60 a barrel of Russian oil, agreed on Saturday in a last-minute deal with G7 nations.

The moves underscore how disastrous Russian President Putin’s February invasion of Ukraine was for the country’s energy exports, S&P Global Vice Chairman Yergin said.

“Vladimir Putin has basically destroyed his most important market for his oil, gas and coal, which is Europe,” Yergin told Yahoo Finance on Friday. “Basically, they don’t want to do anything with it.”

As well as blocking the majority of Russian crude imports into Europe, the ban will impact nearly all shipments across the globe. Indeed, it prohibits European providers of insurance and shipping services from managing ships carrying Moscow-controlled supplies.

The sanctions aim to undermine Russia’s ability to finance its war against Ukraine by reducing its crude export earnings, while the price cap aims to do so while maintaining a steady flow of fuel to Western countries. .

But Russia has said it will not do business with any country that respects EU sanctions, while members of the OPEC+ group of oil producers stuck to their production cuts at their meeting on Sunday. , which could drive prices up.

“Whether [the price cap] actually works, I think it probably has some sort of downward price pull,” Yergin said.

“OPEC nations don’t like it because they say, ‘Well wait – if the industrial nations are pricing Russian oil, will they ever be pricing all our oil?’ So you have OPEC+ versus the G7.”

“But if Russia does what it threatened to do – take a million or 2 million barrels a day off the market – then you’ll see a very different price reaction,” he added.

Russia’s Urals oil benchmark was trading at $63.85 a barrel on Monday. That’s a significant discount to Brent crude, which is priced at $87.11 a barrel, and WTI crude, which changed hands at $81.44 a barrel when last checked.

“Some people say everything will work out smoothly. But that could be very turbulent and be reflected in prices,” Yergin said.

“And you really predict, among other things, what Vladimir Putin is going to do. He’s obviously made a lot of miscalculations before. He can do it again.

“So in a way, if you think about what happens in the oil market in the next few weeks, a lot depends on the decision-making of a Vladimir Putin and a Xi Jinping.”

Commodity traders are watching for further signs that Beijing will ease its zero-COVID restrictions, which many analysts say means an economic reopening that would boost Chinese demand for oil.

“The big blow to the oil market is that you’re probably missing 700,000 barrels a day of Chinese demand for oil,” he said. “So if China starts to open up, we will see the price of oil react higher.”

Read more: EU sanctions on Russian oil come into effect on Monday – here’s what to expect and why the price cap might not yield concrete results

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