...

Discounts on Russian crude will have to widen regardless of caps – Fitch Solutions

Oil&Gas Materials 4 October 2022 13:03 (UTC +04:00)
Discounts on Russian crude will have to widen regardless of caps – Fitch Solutions
Laman Zeynalova
Laman Zeynalova
Read more

BAKU, Azerbaijan, October 4. Discounts on Russian crude will have to widen regardless of caps, Trend reports with reference to Fitch Solutions.

“The G7 has agreed to put a price cap in place on Russian oil. Any companies purchasing oil at prices above the agreed cap will lose access to shipping insurance provided by G7 countries, which collectively provide over 95 percent of insurance to the global oil tanker fleet.

The idea is that the cap will drive down the price of Russian oil, while supporting overall export levels, such that Moscow is starved of revenues, while global oil markets remain adequately supplied. The effectiveness of the cap hinges on fixing the appropriate price level, securing buy-in from major importers outside of the G7 and monitoring compliance. All of these may prove challenging and we hold a somewhat ambivalent outlook on the cap. Under our base case scenario, regardless of the cap, the discounts on Russian crude will have to widen in order to stimulate a broader redirection of trade away from Europe,” Fitch Solutions said in its report.

The report reveals that infrastructural and logistical constraints will prevent a redirection occurring in full, with crude, condensate and NGL exports falling by 15.5 percent y-o-y. Implementation of the cap could see export declines soften (due to lower prices and easier terms of trade) or deepen (via retaliatory measures by Russia). Greater visibility on the cap’s proposed design and enforcement should help clarify the outlook over the coming months.

“Non-OPEC producers will also lift output next year, led by the US. US shale production is posting robust gains, supporting a forecast 5.4 percent and 5.9 percent increase in total liquids production in 2022 and 2023, respectively. Risks to our US forecast – moderate though they are – are again tilted to the downside. While oil prices soared earlier in the year, publicly-listed producers remained disciplined in their spending, opting to conserve cash for debt repayments and shareholder distributions.”

---

Follow the author on Twitter: @Lyaman_Zeyn

Tags:
Latest

Latest