Leaders of the EU’s 27 member states have now agreed to ban seaborne Russian oil imports. To placate landlocked countries such as Hungary, pipeline shipments will continue for now, but Germany’s and Poland’s willingness to taper their pipeline purchases should, combined with the seaborne ban, see Russian oil exports to the EU decline by 90 per cent by the end of 2022.
Prices of oil from elsewhere will rise as European refineries quickly seek replacement supplies. In May, about 500,000 barrels a day of Russian crude was still arriving in northwest Europe, according to Vortexa, a shipping analytics company. While that is a marked decline on the 1.4 mn barrels Vortexa said came each day before Russia’s invasion of Ukraine, shipments to Mediterranean countries such as Italy have actually risen since February 26, although some of those supplies are going to Turkey.
Russia, which produced more than 10 per cent of global oil supplies before the crisis, will need to find new buyers for its barrels or international oil markets could become dangerously undersupplied, analysts pointed out. India has stepped up purchases and China is expected to import more as its cities emerge from Covid-19 lockdowns. But there are doubts over how much Russian oil they can absorb, either due to refinery mismatches with Russian grades or a desire to diversify their suppliers. Millions of barrels of Russian oil are floating on ships with the vessels’ destinations set as “unknown”, suggesting cargoes could be struggling for buyers.
The International Energy Agency has forecast that Russian output could decline by as much as 3 mn b/d. Some analysts see a smaller fall of 1 to 1.5mn b/d. Even this lower figure could still be enough to push oil prices higher.
