Russian oil sanctions are about to kick in. And they could disrupt markets in a big way
Upcoming sanctions on Russian oil are set to be “really disruptive” for energy markets if European nations fail to set a cap on prices, analysts warned. The 27 countries of the European Union agreed in June to ban the purchase of crude oil from Dec. 5. In practical terms, the EU — together with the United States, Japan, Canada and the U.K. — want to drastically cut Russia’s oil revenues in a bid to drain the Kremlin’s war chest following its invasion of Ukraine. The right oil cap A proposal discussed earlier this week suggested a limit of $62 a barrel, but Poland, Estonia and Lithuania refused to agree to it, arguing it was too high to dent Russia’s revenues. These nations have been among the most vocal in pushing for action against the Kremlin for its aggressions in Ukraine. Speaking to CNBC’s Julianna Tatelbaum Wednesday, the Dutch energy minister said a cap on Russian oil prices was “a very important next step.” “If you want effective sanctions that are really hurting the Russian regime, then we need this oil cap mechanism. So hopefully we can agree on it as soon as possible,” Rob Jetten said.
Alternative energy: IOC to set up new company for green business
Indian Oil Corporation (IOCL), India’s largest oil marketing company, is planning to set up a new company to house its alternative energy businesses, according to sources aware of the development. IOCL is already present and has ambitious expansion plans in biofuel, biogas, green hydrogen, EV mobility and EV batteries, among others. It is venturing into green hydrogen production and is targeting 5% of hydrogen produced by it as green hydrogen by 2027-28 and 10% by 2029-30. “The new company will be formed next year. Discussions are in advanced stages with FIIs and other stakeholders on formalising a structure for the company,” said an industry official aware of the matter. IOCL declined to comment on the development. The state-owned refiner and oil marketing company is also working in alternative energy areas to provide renewable energy solutions such as 2G ethanol from agri waste, fuel cell technology for automobiles, biodiesel production from solar power, and energy storage devices. “A separate company will not only bring in better valuation for IOCL’s renewable assets but also allow the company to rope in strategic partners and monetise assets easily, something it has not been able to do in other segments,” said the second official aware of the development.
Domestic gas producers must have complete pricing freedom, recommends govt-appointed panel
The Kirit Parikh committee, the government-appointed panel to review the gas pricing formula, on Wednesday recommended a floor of $4 for legacy gas fields and suggested that a cap of $6.50/mmBtu be put on gas prices sold by ONGC and Oil India. While the ceiling price recommended in the report submitted to the Oil Ministry is $6.50/mmBtu and it will be gradually raised by $0.50/mmBtu every year, Kirit Parikh told CNBC-TV18 in an exclusive interview. He noted that while the administered pricing mechanism (APM) gas pricing is still determined by the government on the basis of a formula, domestic producers must have complete pricing freedom, which is the only way to up local production. He added that APM gas price is expected to come down from $8.50/mmBtu. “We want to provide adequate returns to city gas distribution companies,” he said, adding that the panel has proposed complete liberalisation of APM gas by January 1, 2027. Difficult gas fields should see liberalisation by January 1, 2026. Parikh pointed out that India needs to increase its share of gas consumption from 6 percent currently and needs to protect consumers from getting implicitly subsidised gas. He added that lowering import prices will impact domestic producers and the government should look at giving complete freedom on pricing. The Kirit Parikh panel has sought a link in the gas price to imported oil. In addition, the panel believes gas must be included in GST, stake compensation should be for five years and the caps on gas prices must be removed in three years.
Oil Prices Could Sink Without Further OPEC+ Action
Oil prices could sink if OPEC+ acts in line with market expectations and agrees to keep production quotas stable for another month, some analysts told Reuters. The OPEC+ group meets on Sunday—although this meeting was recently determined to be a virtual one. The virtual nature of the meeting has signaled to some that the group would refrain from making big changes to its production plans for January. If OPEC+ does fail to make big changes to its production quotas—that is, if it fails to cut production even more—oil prices could fall. OPEC+ agreed to drastically cut its production quotas by 2 million bpd last month, which first went into effect in November. The actual cut delivered by the group, however, was expected to be much more modest, somewhere around 1 million bpd, because several OPEC+ members were already producing under the new quota before it even hit. OPEC+ could take a wait and see approach at this meeting and leave things mostly unchanged, pending a clearer picture of the fallout from the G7 embargo on Russian crude oil and China’s covid outcomes. According to PVM Oil analyst Stephen Brennock, “a further cut in production cannot…be ruled out. Failure to do so risks sparking another selling frenzy.” Brennock did not specify how low prices could fall in that scenario. Energy Aspects Amrita Sen also does not see OPEC+ shifting gears just yet, while EBS analyst Giovanni Staunovo said that weaker Chinese demand and the threat of more SPR releases from the United States could prod OPEC+ to cut production further. Brent crude prices were trading up $1.62 per barrel on Thursday afternoon, to $88.59—a 1.86% rise on the day.