Oil Prices Surge Following Sanctions and Exiting Companies in Russia

March 02, 2022 | By Diane Nicole Go

From sweeping sanctions against Russian companies and banks to major global companies exiting, the Russian oil trade is in disarray as oil prices shoot up.

Following Russia’s invasion of Ukraine last week, the oil trade industry in Russia was in disarray. Producers postponed sales, importers rejected Russian ships, and many buyers worldwide sought alternatives for their much-needed crude oil following the sanctions imposed against Moscow.

But that’s not all. Many global energy companies like BP, Equinor, and Shell have abandoned their multibillion-dollar positions in Russia. What’s more, sources add that British energy company BP—the biggest foreign investor in Russia—has already canceled all of its fuel oil loadings from the Russian Black Sea port of Taman.

“I have been deeply shocked and saddened by the situation unfolding in Ukraine and my heart goes out to everyone affected. It has caused us to fundamentally rethink BP’s position with Rosneft,” BP chief executive Bernard Looney said, referencing Russian integrated energy company Rosneft, which accounts for around half of BP’s oil and gas reserves and a third of its production.

Rejecting Russian Oils

With sanctions being imposed on Moscow—targeting Russian companies, banks, and individuals—many refiners, traders, and oil majors have steered clear of Russia in fear of being sanctioned, too.

Russia, being the second-largest exporter of crude worldwide, ships out 4 to 5 million barrels per day, along with 2 to 3 million BPD of refined products. But with many companies boycotting, this can mean more supply and less demand on their hands.

And with the high demand—one that goes past pre-pandemic levels—and other major producers struggling to keep up, oil prices may just keep going up. “Nobody wants to buy, ship, or store Russian oil,” a trader of Russian oil says.

On the other hand, buyers around the world are seeking supplies from elsewhere. For instance, state-run Indian refiner Bharat Petroleum Corporation, which buys roughly 2 million barrels of Russian Urals every month, is looking into getting oil from Middle Eastern producers.

Managing a Surplus

With a surplus of oil, Russia has had to lower its prices. In fact, Russia’s key Urals oil grade was bid at a rate of more than $18 below physical Brent crude. And even at that price, traders haven’t been able to find willing buyers.

But even so, non-Russian oils have been snagged in the turmoil. According to traders who spoke with Reuters, buyers were avoiding oil that was delivered through the CPC pipeline, which delivers over 1% of world supply from Kazakhstan, because it may mix with Russian grades at a Russian port on the Black Sea.

“It’s an important source of supply—over a million barrels a day—into a world which right now really needs that oil supply,” Chevron chief executive Mike Wirth says.

To address the issue, Russia is expected to boost supplies to China through its oil pipeline monopoly, Transneft, which handles over 80% of the total oil produced in Russia. What’s more, it plans to increase supplies to China through the ESPO pipeline this month, according to sources from the TASS news agency.

Boycotting Russian Oil Supplies

In solidarity, many countries have taken to shunning Russian imports. Canada, for example, stated on February 28, that it would be banning oil imports from Russia. US traders have followed suit, while the Malaysian government said that Russian-flagged oil tankers that are targeted by US sanctions will not be allowed to call at the Kuala Linggi port.

On the other hand, countries in the European Union are considering a ban on Russian ships that enter the ports in the block. Britain adds on Monday that it will refuse entry to all ships that are owned, operated, controlled, chartered, registered, or flagged by Russia.