BAKU, Azerbaijan, Jan.18. Beyond the limited impact on supplies, oil markets have been subject to deep transformations which will only accelerate in 2023, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
These transformations have been reflected in a number of key areas:
- There has been a massive shift in oil trade flows with some of these shifts likely to prove long lasting;
- Oil markets have become more segmented with wide divergence in the prices of sanctioned and non-sanctioned crudes;
- The disappearance of Russian Urals in Europe also impaired the price discovery process for sour crudes reducing the efficiency of arbitrage between regions;
- To redirect its crude and products and to avoid the EU restrictions on insurance and shipping, Russia had to rely on its own fleet but also on ‘shadow’ and ‘dark’ fleet which meant that tracking trade flows has become increasingly challenging;
- As China and India continue to increase their imports of Russian crude, the share of oil trade conducted in currencies other than the US dollar is poised to rise and there will be increasing calls from these countries to conduct oil and gas trade in their local currencies;
- Even though Russia has been successful in redirecting its oil flows, Russia has lost most of its customer base with the fate of its exports being very dependent on few countries (mainly China and India).
“Russia is unlikely to maintain its current productive capacity in the face of current sanctions as it loses access to services of western companies and to high quality equipment. As a result, Russia’s production will most likely fall over time. Among other things, this will impact Russia’s position within OPEC+ especially that other countries within the Group have ambitious plans to increase their productive capacity and export potential. In fact, in December 2022, Russia’s production was well below its quota and much lower than its baseline. In short, although Russian production proved to be resilient and the oil market did not experience a large loss in supply so far and unlikely to experience a persistent supply shock as Russian sellers will eventually find a way around the current restrictions, the oil market has undergone some structural transformations in terms of shifts in trade flows, pricing, market segmentation, transparency, commercial and geopolitical relations, and Russia’s position in oil market.”
---
Follow the author on Twitter: @Lyaman_Zeyn