ICE Brent settled nearly 5% greater the other day, taking rates back above US$ 110/bbl. This strength follows a main statement from the European Commission on a proposition to prohibit Russian oil and fine-tuned item imports. The Commission is proposing that Russian oil imports are phased out over a 6 month duration, whilst phasing out Russian refined item imports by year-end. Member nations might possibly decide in the coming days, although there might be some pushback from nations that are greatly dependent on Russian supply, particularly Hungary and Slovakia. As we discussed the other day, there are reports that exemptions might be offered to some nations in the CEE which would discover it harder to stop Russian oil imports within a 6 month duration.
The EU imports a considerable quantity of petroleum from Russia. In 2021 imports amounted to around 2.3 MMbbls/d, which is around 26% of their overall petroleum imports. The 6-month wind-down duration supplies time for an organized modification in trade circulations. Nevertheless, there are dangers. There is the capacity for Russia to stop oil streams to the EU prior to the wind-down duration concerns an end, which would leave the EU rushing to rapidly discover other supply. In addition, there is the threat of secondary sanctions from the United States on Russian oil, which would make it tough for any nation to purchase Russian oil. Offered the tightness in the supply and need balance, the marketplace would not have the ability to deal with nearly a complete loss in Russian oil supply, therefore if we were to see this, we would see considerably greater rates. In the meantime, we do not believe secondary sanctions are most likely, so this need to enable the similarity India and China to increase their Russian oil purchases, maximizing other sources of supply for the EU.
OPEC+ members will fulfill today to discuss their output policy for June. Heading into the conference, expectations are that the group will adhere to the offer and boost output by 432Mbbls/d over the month. Whilst they might accept this boost, in practice, the group are not likely to strike this target. For a number of months now, OPEC+ members have actually disappointed their predetermined output levels, with interruptions and an absence of financial investment in fields weighing on output. The next conference ought to be more fascinating, considered that OPEC+ ought to have more clearness on what the EU chooses in regards to Russian oil imports. Do not anticipate them to increase output though. Extra capability is restricted to simply a handful of members, and Russia becomes part of the OPEC+ pact therefore will have an impact on what the group chooses. It is difficult to see Russia supporting a supply boost when need for their oil is under pressure.