U.S. Treasury Secretary: A Russian Oil Price Cap Will Benefit China And India
The U.S.-led initiative seeking to set a ceiling on the price of Russian oil sold on international markets will benefit China, U.S. Treasury Secretary Janet Yellen told media today on the sidelines of the G20 summit. “We see the price cap is something that benefits China benefits India, and benefits all purchasers of Russian oil,” Yellen said, as quoted by Reuters. In her statement, the U.S. Treasury Secretary also said that China’s current buying of Russian crude was “completely consistent” with the West’s plans to keep Russian crude flowing into international markets. Yet China, like India, has refused to join the price cap effort despite attempts by the U.S., and specifically Yellen, to get them on board with the argument that a price cap would make their imported Russian oil more affordable. Russia has said it would not sell oil to countries supporting the cap. A few days before her statement on China, Yellen said she hoped India would take advantage of the price cap, again noting that it would make Russian oil cheaper for importers. In a separate statement from earlier today, the U.S. Treasury Secretary said the U.S. had no problem with India not taking advantage of the cap but noted that this would mean Indian buyers of Russian crude would have to forego using Western insurance, financing, and shipping services, as those would be tied in the cap scheme. Most analysts have pointed out China and India as crucial for the success of the price cap scheme because they are the biggest buyers of Russian oil. At the same time, the countries that devised the cap scheme – the G7 – all have already active or pending bans on Russian oil, meaning they will not be importing any Russian crude in a couple of months anyway, so the cap makes zero sense for them.
Paris Agreement requires phase down of all fossil fuels: India at COP27
The negotiations at the U.N. climate summit last year (COP26) in Glasgow ended with an agreement on phasing down the unabated use of coal instead of phasing out As negotiators from 194 parties started working out a draft cover text at the U.N. climate summit in Egypt, India on Saturday said meeting the long-term goal of the Paris Agreement requires “phase down of all fossil fuels”, sources told PTI. Natural gas and oil also lead to emission of greenhouse gases. Making only one fuel the villain is not right,” a source in the Indian delegation attending the climate talks said. The move paves the way for fierce debates during the second week of talks being held in the resort town of Sharm el-Sheikh from November 6 to 18. Citing the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, Indian negotiators told the Egyptian COP27 presidency that meeting the long-term goal of the Paris Agreement “requires phase down of all fossil fuels”. “Selective singling out of sources of emissions, for either labelling them more harmful or labelling them ‘green and sustainable’ even when they are sources of greenhouse gases, has no basis in the best available science,” the Indian side said. It should be acknowledged that “all fossil fuels contribute to greenhouse gas emissions”, India said and urged “acceleration of the global clean energy transition, as per national circumstances”. he Indian negotiators said the basic principles of common but differentiated responsibilities, equity, and nationally determined nature of climate commitments under the Paris Agreement “need to be strongly emphasised in the cover decision text”. They emphasised that “we continue to live in an unequal world with enormous disparities in energy use, incomes and emissions”. Cover decision negotiations started on Saturday with the countries proposing what they would like to be included in the final deal. The negotiations at the U.N. climate summit last year (COP26) in Glasgow ended with an agreement on phasing down the unabated use of coal instead of phasing out.
India can buy as much Russian oil as it wants, outside price cap, says Yellen
India will only need to avoid Western financial, maritime services bound by the cap says U.S. Treasury Secretary; stresses goal is to drive global oil prices lower while curbing Russia’s revenues. The United States is happy for India to continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap, U.S. Treasury Secretary Janet Yellen said on Friday. The cap would still drive global oil prices lower while curbing Russia’s revenues, Ms. Yellen said in an interview with Reuters on the sidelines of a conference on deepening U.S.-Indian economic ties. Russia will not be able to sell as much oil as it does now once the European Union halts imports without resorting to the capped price or significant discounts from current prices, Ms. Yellen added. “Russia is going to find it very difficult to continue shipping as much oil as they have done when the EU stops buying Russian oil,” Ms. Yellen said. “They’re going to be heavily in search of buyers. And many buyers are reliant on Western services.” India is now Russia’s largest oil customer other than China. Final details of the price cap to be imposed by wealthy G7 democracies and Australia are still coming together ahead of a Dec. 5 deadline.
Reliance, Nayara To Gain From European Energy Crisis
As expected to benefit Reliance Industries and Nayara Energy as these are among the Asian refiners that produce winter-specification diesel for the European Union, according to a report. State-owned oil companies are not into exports and that gives an advantage to Reliance — the largest importer of Russian crude and also the largest exporter of diesel from the country — and Russia’s Rosneft-owned Nayara. The energy crisis will only get further aggravated going forward as from next month Opec’s 2-million barrel per day production cut comes into force, and from February 5 the ban on Russian imports of refined products comes into force, say oil analysts at LSG group’s market data provider Refinitiv. According to them, since the war began in Ukraine, Reliance and Nayara have imported almost 10 times more Russian crude from the pre-invasion levels, at 2.82 million tonnes per month during March-September. Already, Indian exports to Europe have been northward after Russia invaded Ukraine late February. Indian refiners have taken advantage of the strong diesel margins after the invasion and raised their exports to Europe, averaging at 7,30,000 tonnes per month, or 21 per cent of their total exports of 2.64 million tonnes/month, that peaked at 1.1 million tonnes in March against the pre-invasion period average of 5,70,000 tonnes per month, the analysts said. Domestic refiners have been averaging at 99.86 per cent of their 5.14 million barrel per day (bpd) capacity since the war as against the pre-war average of 94.26 per cent. Their gasoline output averaged at 9.75 million tonnes/month for the March-August period and hit a high of 10.57 million tonnes in March, well above the pre-invasion average of 8.95 million tonnes a month. Reliance’s 5.68 million tonnes per month Jamnagar refinery has been running at 93.8 per cent capacity post-invasion, above the pre-invasion average of 92.3 per cent, but still below the pre-Covid average of 110 per cent. This signals that there is an upside to Reliance’s diesel production. The Rosneft-owned Nayara has a 1.67-million tonnes per month refinery at nearby Hazira. From Asia, according to Refinitiv, only India and Korean refiners can make winter-specification diesel for the EU, which is the world’s largest consumer of the fuel. Since the Ukraine war began in February, diesel supplies from Asia to Europe have been stable averaging at 9,50,000 tonnes per month, massively up from the pre-invasion average of 1 million tonnes per month. In August this hit an 11-month high of 1.64 million tonnes. This will go up further as China has just issued a massive 15 million tonnes export quota for refined products. These analysts estimate that Asia and the Middle East can at best offer an additional 1.5-2.2 million tonnes per month of refined products for Europe as the winter progresses. Europe is the largest importer of diesel worldwide and is net short of the petroleum distillate that it uses for heating, road transport, power generation and industrial use. International Monetary Fund (IMF) estimates that the mounting energy crisis has EU nations spending a combined USD 276 billion this winter on various relief measures to help their citizens cope with surging energy bills. Seaborne imports into the continent surged to an all-time high of 7.5 million tonnes in October, surpassing the previous record of 6.6 million tonnes in November 2021, and most of that volume came in from Russia, the Middle East, Asia and the US, according to Refinitiv. Total imports averaged 5.3 million tonnes a month between January 2021 and February 2022 and the same rose to an average of 5.9 million tonnes per month in the March-October period. And Russia was the single largest supplier, accounting for almost 55 per cent of this pre-invasion, or the monthly average of 2.85 million tonnes, which post-invasion averaged at 2.35 million tonnes per month, or 43 per cent of the total. Of these Russian volumes, 1.62 million tonnes per month of winter-specification diesel are flowing into northwest Europe post-invasion, including to region’s largest consumer Germany, down from the pre-invasion average of 1.92 million tonnes per month. According to the International Energy Agency, Europe’s non-road gasoline demand is likely to increase by 2,50,000-3,00,000 bpd, or 1-1.2 million tonnes per month. The EU held 40 million tonnes of emergency diesel, and 10 million tonnes of petrol in June 2021 in reserves which have since dropped to 35.04 million tonnes, with automotive diesel comprising 30.4 million tonnes and gasoil accounting for 5.04 million tonnes. Refinitiv estimates supply gap to be at 3.5-4 million tonnes per month for Europe as a whole and 2.5-3 million tonnes a month to northwest Europe.
The Growing Anti-OPEC Movement Is Disasterous For Oil Markets
Earlier this year, Italy’s then-PM Mario Draghi floated the idea of large oil buyers clubbing together and standing up to OPEC+. The idea did not progress much further than the floating stage because one obvious problem could not be ignored: OPEC would retaliate. Yet it seems that some ideas tend to be so attractive that they resurface, again and again, in slightly different forms. The idea of an anti-OPEC buyers’ club has also resurfaced, and not just that, but a NOPEC bill has moved to the Senate in the United States and, according to media coverage, has a chance of passing. Some, however, have gone further than a bill. One Bloomberg columnist, Carl Pope, recently detailed his vision of an anti-OPEC grouping, which manages to combine the idea of both affordable oil and a push for the electrification of transport. Again, the problems are too obvious to overlook. For starters, Pope suggests that in case the NOPEC bill is successful, the U.S. could start punishing OPEC+ members by imposing fines, import tariffs, and even sanctions, as well as barring access to public financial markets to national oil companies such as Aramco and Rosneft. The message here seems to be along the lines of “That’ll show them,” but this message ignores the fact that first, Rosneft is already heavily sanctioned and cut off from Western financial markets, and second, Aramco is not exactly Chevron or Shell, and while it has recently tapped markets several times, it’s questionable whether it is so dependent on external finance that it would suffer any serious harm from such measures. The other fact that Pope’s idea seems to ignore is that such punitive measures would essentially mean that OPEC+ oil would become more expensive for the countries that employ the measures. Any oil becomes more expensive, really, when sanctions or tariffs are introduced on a third of the global supply. Again, this wouldn’t be such bad news for sellers of oil, including the U.S., but it would certainly be bad news for buyers – again, including the U.S. The alternative to OPEC that Bloomberg’s Pope proposes is what he calls an Organization for Clean and Affordable Transportation. Pope says it should be made up of “responsible oil producers and consumers”. This means the U.S., Canada, and Norway on the producing side and pretty much everyone but OPEC+ on the consuming side. That’s not a whole lot of responsible producers. The idea appears to follow the model of the so-called friend-shoring push spearheaded by the United States in critical minerals. For now, the push aims to re-draw supply chains for the energy transition and reduce China’s overwhelming dominance in critical minerals mining and processing. The idea, like Pope’s OCAT, is to rely on friendly producers of the raw materials needed for the transition. The problem, like with OCAT, is that such friendly producers can provide only a fraction of the supply necessary for the transition. The administration in Washington likes to control all sorts of prices. It also likes to control the supply of oil, although it has failed to accomplish anything resembling control of that so far, even at home, let alone over OPEC+. Indeed, the U.S. oil industry is very much against a NOPEC law because it knows how the oil market works. As the president and chief executive of the industry lobby group the American Petroleum Institute said in comments on the latest developments around the NOPEC bill, it “would create further instability in the marketplace and exacerbate existing challenges in international commerce. Such legislation would be unhelpful in any market condition past, present or future.” The U.S. and the European Union, which Pope suggests should form the new anti-OPEC Organization for Clean and Affordable Transportation, already made a grave mistake with Russia. They assumed that whatever they threw at it in the way of sanctions and asset freezings, Russia wouldn’t retaliate because it needs Western markets. Now, NOPEC supporters seem to be making the same dangerous assumption: that OPEC+ would not retaliate against punitive action from the West. And that the West can survive longer without OPEC+ oil than OPEC+ can survive without selling its oil to the West. As we can see from what has been happening in Europe over the past few months, this is a highly questionable assumption. The hopes behind an anti-OPEC push are hopes of more control of the global oil market so price spikes that hurt economies are avoided. The reality is that such control is impossible for a group of countries that only includes three oil-producing states of any respectable size plus the UK – an oil power in decline thanks to government transition plans. In any market, it’s not so much about who represents the most demand that can move the market where they like. It’s about who represents the most supply. This is perhaps the best argument in favor of the energy transition and the electrification of transport, so it is quite unfortunate that China looms so large in that department, just as Saudi Arabia, Russia, and their friends in OPEC+ loom large in oil.