Buying Russian hydrocarbons amounts to financing Vladimir Putin’s war against Ukraine. But once that said…
Big day of oil negotiations on Monday, after American threats to impose an embargo on Russian oil. Benchmark prices immediately jumped. North Sea Brent crude closed at US$123.21 a barrel after hitting US$139. In New York, West Texas Intermediate (WTI) closed at US$119.40 after rising above US$130 during trading. Levels not seen since the last oil shock in 2008.
Certainly, it is permissible to relativize. Stéfane Marion, Chief Economist and Strategist at National Bank, offers a graph showing that in 2022 dollars, adjusted for inflation, WTI should exceed US$170 a barrel to break its 2008 record, where he received US$135. On the other hand, the bar has been crossed for the price of gasoline, with a price of $1.435 per liter observed in Montreal in July 2008 becoming the equivalent of $1.80 in 2022 dollars, by applying the same formula. The price averaged $1.867 in Quebec on Monday. He knocked on the door of $2 at certain Montreal gas stations. As the acquisition cost of black gold accounts for roughly two-thirds of the price at the pump, the impact of a surge in reference prices is rather felt.
As for the projections, Bank of America Chief Economist Ethan Harris wrote that if the majority of Russian oil exports were halted, a deficit of at least 5 million barrels per day would result in the market. and 2.8 million barrels per day of refined products, which would have the potential to push the price per barrel to US$200. JPMorgan Chase & Co believe Brent crude will end the year at US$185 if Russian supplies continue to be disrupted.
no decision
US President Joe Biden “has not made a decision at this stage” on a possible embargo on Russian gas and oil, his spokeswoman, Jen Psaki, said on Monday. The subject was broached during a conversation of the American president with the German, French and British leaders, but “different capacities and possibilities” quickly appeared. Germany, in particular, opposes any embargo on Russian gas, on which it is very dependent, while the United States imports little Russian crude, could we read in a text from Agence France-Presse .
Russia is, in fact, the first supplier of natural gas to the European Union, with 40% of imports — which represents 19% of the total gas consumption of the European Union (EU) — and the second supplier of oil, with more than 20% of imports and 16% of total consumption, according to data from the French Senate. Germany imports nearly 55% of its gas and 42% of its oil from Russia. Dependency reaches 100% in several Eastern European countries.
Russian gas threat
For its part, Russia has warned of “catastrophic consequences” for the world market. “The surge in prices is likely to be unpredictable and to reach more than US$300 for a barrel, or even more,” declared the Russian Deputy Prime Minister, in charge of Energy, Alexandre Novak, quoted by the press agencies. Russians. He then issued a warning. In reaction to the German decision to freeze the Nord Stream II gas pipeline linking Russia to Germany, “we have every right to take a similar decision and put our embargo on gas deliveries through the Nord Stream I gas pipeline “, which transports Russian gas to Europe and which is currently filled” at 100% “, he warned.
However, it is estimated that at current prices, an interruption of the flow to the EU in retaliation would cause Russia to lose at least $7.5 billion in revenue per month.
Meanwhile, diplomatic demarches to Saudi Arabia and even Venezuela were being made to explore options for filling the market void, amid nuclear treaty talks with Iran being delayed by new Russian requirements. Moreover, OPEC’s current excess capacity that can be deployed in the first 30 to 60 days is estimated at around 4 million barrels per day, including 2 million from Saudi Arabia. But analysts point to Russia’s influence within an expanded cartel, which is reacting to runaway prices with increments in its production in dribs and drabs.
Dependence on Europe
It is true that Russia has 6.4% of world oil reserves and 17.3% of gas reserves. In return, it is very dependent on Europe, which absorbs about 90% of its gas exports. In total, hydrocarbon exports are of major importance for the Russian economy: in 2019, they represented 25% of the country’s GDP, 40% of its budget revenue and 57% of its exports, specifies Olivier Appert, adviser to the “center energy” of the French Institute of International Relations. In 2021, oil and gas revenues from exports are expected to represent 36% of total tax revenues.
And any gain from a price boom for producers is quickly erased by soaring inflation, economic downturn and subsequent reduction in oil demand.