Failure To Implement Russian Oil Ban Could Send Oil Crashing To $65
Several E.U. member states made it plain that they will veto any E.U. proposal to ban Russian oil (or gas) imports.
Removal of oil ban ‘fear factor’ may significantly reduce risk premium in crude oil prices.
Lack of clear leadership from Germany makes an effective oil embargo a long shot.
A key factor in the upper band of the benchmark crude oil trading ranges over the past weeks is market concern over a ban of Russian oil exports to the European Union (E.U.). Prior to the invasion of Ukraine, Europe was importing around 2.7 million barrels per day (bpd) of crude oil from Russia and another 1.5 million bpd of oil products, mostly diesel.
This fear, though, is vastly overblown for several reasons analyzed below. The removal of this particular fear factor in the oil price will allow oil prices to move back over the course of this year to the level they were
before the Russia-Ukraine ‘war premium’ began to be priced in by the smart money in September 2021, which was around US$65 per barrel (pb) of Brent. The primary reason why a meaningful E.U. ban on Russian oil (or gas) will not occur is that it would require the unanimous backing of all of its 27 member countries.
All of this rhetorical flim-flam by Germany and the E.U. has resulted in an oil price that remains way above where it should be, given the confluence of multiple bearish factors currently at play. On the supply side there remain definite pledges from the U.S. Energy Secretary, Jennifer Granholm, to engineer a “significant increase” in domestic energy supply by the end of the year, with the U.S. also working to identify at least three million bpd of new global oil supply.
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