Since the 5th local time, the EU’s “price limit order” on Russian oil exports by sea has officially come into force. The new rules will set a price ceiling of US $60 per barrel for Russian oil exports.
In response to the EU’s “price limit order”, Russia has previously said that it will not supply oil and petroleum products to countries that impose price limits on Russian oil. How much will this price limit affect the European energy crisis? What are the good export opportunities for the domestic chemical market?
Will price fixing work?
First of all, let’s see if this price limit works?
According to the report on the website of the American magazine National Interests, American officials believe that the price ceiling enables buyers to have greater price transparency and leverage. Even if Russia tries to bypass the price limit with buyers outside the alliance, their income will still be depressed.
However, some large countries are likely not to abide by the price ceiling system and will rely on insurance services other than those of the EU or G7. The complex structure of the global commodity market also provides a back door opportunity for Russian oil under sanctions to obtain considerable profits.
According to the report of National Interest, the establishment of “buyer’s cartel” is unprecedented. Although the logic supporting the oil price limit is ingenious, the price limit plan will only aggravate the turbulence of the global energy market, but will not have much impact on reducing Russia’s oil revenue. In both cases, the assumptions of western policymakers about the effect and political cost of their economic war against Russia will be questioned.
The Associated Press reported on the 3rd that the price ceiling of $60 could not hurt Russia, citing analysts. At present, the price of Russian Ural crude oil has dropped below $60, while the price of London Brent crude oil futures is $85 per barrel. The New York Post quoted JPMorgan Chase analysts’ prediction that if the Russian side retaliates, the oil price may soar to 380 dollars per barrel.
Former US Finance Minister Mnuchin once said that the way to limit the price of Russian crude oil is not only infeasible, but also full of loopholes. He said that “driven by Europe’s reckless import of refined oil products, Russian crude oil can still flow to Europe and the United States without restrictions as long as it passes through transit stations, and the processing added value of transit stations is the best economic benefit, which will stimulate India and Türkiye to increase their efforts to purchase Russian crude oil and refine refined oil products on a large scale, which is likely to become a new economic growth point for these transit countries.”
This time has undoubtedly deepened the European energy crisis. Although the natural gas inventory of many European countries is at full load, according to Russia’s current statement and the trend of the future Russia Ukraine war, Russia will not easily compromise on this, and perhaps the price limit is just an illusion.
Russian Foreign Minister Sergei Lavrov said on December 1 that Russia is not interested in the western setting of the Russian oil price ceiling, because Russia will directly complete the transaction with its partners and will not supply oil to countries that support the setting of the Russian oil price ceiling. On the same day, the First Vice President of the Central Bank of Russia Yudayeva said that in recent years, the international oil market has repeatedly experienced violent fluctuations. The Russian economy and financial system have shown resilience to the impact of the energy market, and Russia is ready for any change.
Will oil price limiting measures lead to tight international oil supply?
From the perspective of the strategy that Europe and the United States did not completely block Russian oil exports, but took price ceiling measures, Europe and the United States hope to reduce the war costs in Moscow and try not to have a big impact on global oil supply and demand. It is predicted from the following three aspects that the probable rate of oil price limit will not lead to tight oil supply and demand.
First, the maximum price limit of $60 is a price that will not lead to Russia’s inability to export oil. We know that the average sales price of Russian oil from June to October was 71 dollars, and the discount price of Russian oil export to India in October was about 65 dollars. In November, under the influence of oil price limiting measures, Ural oil fell below 60 yuan for many times. On November 25, the shipment price of Russian oil at Primorsk Port was only 51.96 dollars, nearly 40% lower than Brent crude oil. In 2021 and before, the sales price of Russian oil is also often lower than $60. Therefore, it is impossible for Russia not to sell oil in the face of a price lower than $60. If Russia does not sell oil, it will lose half of its fiscal revenue. There will be serious problems in the operation of the country and the survival of the military. Therefore,
price limiting measures will not lead to the reduction of international oil supply.
Second, Venezuela’s oil will return to the Jianghu, which is a warning to Russia.
On the eve of the official entry into force of the crude oil ban and oil price limit, US President Biden suddenly released good news to Venezuela. On November 26, the US Treasury allowed energy giant Chevron to resume its oil exploration business in Venezuela.
It should be noted that in recent years, the United States has successively sanctioned three energy producing countries, namely Iran, Venezuela and Russia. Now, in order to avoid Russia’s continued use of energy weapons, the United States releases Venezuelan oil to check and balance.
The policy change of the Biden government is a very clear signal. In the future, not only Chevron, but also other oil companies can resume their oil exploration business in Venezuela at any time. At present, Venezuela’s daily oil production is about 700000 barrels, while before the sanctions, its daily oil production exceeded 3 million barrels. Industry experts predict that Venezuela’s crude oil production capacity will quickly recover to 1 million barrels per day within 2-3 months. Within half a year, it can recover to 3 million barrels per day.
Third, Iranian oil is also rubbing hands. In the past six months, Iran has been negotiating with Europe and the United States, hoping to use the nuclear issue in exchange for lifting oil sanctions and increasing oil exports. Iran’s economy has been very difficult in recent years, and domestic conflicts have intensified. It continues to increase oil exports to survive. Once Russia reduces oil exports, it is a good opportunity for Iran to increase oil exports.
Fourth, as most countries continue to raise interest rates to control inflation, global economic growth will slow down in 2023, and the demand for energy will ease. OPEC has made such predictions for many times. Even if Europe and the United States impose price ceiling sanctions on Russian energy, the global crude oil supply can achieve a basic balance.
Will the oil price limit lead to a sharp rise in international oil prices?
On December 3, in the face of the Russian oil price limit to be implemented on December 5, Brent futures oil prices were calm, closing at 85.42 dollars per barrel, 1.68% lower than the previous trading day. Based on a comprehensive assessment of various factors, the oil price limit can only drive the oil price down, but not lead to the oil price rise. Just as this year’s experts who advocated that sanctions against Russia would lead to soaring oil prices failed to see the oil price of about $150, they will not see the oil price of more than $100 that can last two weeks in 2023.
First, the balance between international oil supply and demand has been established after the war. After the chaos of supply and demand in the second quarter, Europe has rebuilt a new oil supply channel that does not rely on Russia, which is the basis for the decline of global oil prices in the third quarter. At the same time, although the two friendly countries of Russia increased the proportion of oil procurement from Russia, they both remained at about 20%, not reaching the EU’s dependence on Russian oil of about 45% before 2021. Even if Russian oil production stops, it will not have a serious impact on international oil supply.
Second, Venezuela and Iran are anxiously waiting for the top position. The oil production capacity of these two countries can completely offset the decrease in oil supply caused by the shutdown of Russian oil production. The supply and demand are basically balanced, and the price cannot rise.
Third, the development of new energy sources such as wind energy and solar energy, as well as the development of bioenergy, will replace the demand for some petrochemical energy, which is also one of the factors preventing the rise of oil prices.
Fourth, after the implementation of the Russian oil ceiling, based on the price comparison relationship, the rise of non Russian oil will be constrained by the low price of Russian oil. If Middle East Petroleum 85 and Russian Petroleum 60 have a relatively stable price comparison relationship, when the price of Middle East petroleum rises too much, some customers will flow to Russian Petroleum. When the oil price in the Middle East drops significantly on the basis of 85, Europe and the United States will lower the ceiling price for Russian oil, so that the two prices reach a new equilibrium.
Western “price limit order” stirs up the energy market
Russia wants to establish a “natural gas alliance”
It is reported that some analysts and officials warned that the western “price limit order” might irritate Moscow and make it cut off the supply of natural gas to European countries. From January to October this year, European countries imported 42% more liquefied natural gas from Russia than the same period in 2021. Russia’s supply of liquefied natural gas to European countries reached a record 17.8 billion cubic meters.
It was also reported that Russia was discussing the establishment of a “natural gas alliance” with Kazakhstan and Uzbekistan. A spokesman for Kazakh President Kassym Jomart Tokayev said that this was an initiative put forward by Russian President Putin.
Peskov said that the idea of establishing the alliance was mainly based on the consideration of the coordinated energy supply plan, but the details were still under negotiation. Peskov suggested that Kazakhstan could save “tens of billions of dollars spent on pipelines” by importing Russian natural gas. Peskov also said that the plan hoped that the three countries would strengthen coordination and develop their own domestic gas consumption and transportation infrastructure.
Where is the market opportunity?
The shortage of energy in Europe and the sharp rise in the price will lead to a further shortage of natural gas used in industrial production, and the production cost of European chemicals will rise significantly. At the same time, the shortage of energy and high costs may lead to passive load reduction of local chemical plants, resulting in a large gap in the supply of chemicals, further promoting the sharp rise in the price of local products in Europe.
At present, the price difference of some chemical products between China and Europe is widening, and the export volume of Chinese chemical products is expected to increase significantly. In the future, China’s supply advantage in traditional energy and new energy is expected to continue, the cost advantage of Chinese chemicals relative to Europe will continue to exist, and the global competitiveness and profitability of China’s chemical industry is expected to further enhance.
Guohai Securities believes that the current part of the basic chemical industry is in good shape: among them, there is a marginal improvement expectation in the domestic real estate industry, which is good for the polyurethane and soda ash sectors; European energy crisis fermentation, focusing on vitamin varieties with high production capacity in Europe; The downstream phosphorus chemical industry chain has the characteristics of agricultural chemical industry and new energy growth; The tire sector whose profitability is gradually restored.
Polyurethane: On the one hand, the introduction of Article 16 of the real estate financial support policy will help to improve the margin of the domestic real estate market and promote the demand for polyurethane; On the other hand, the production capacity of MDI and TDI in Europe accounts for a high proportion. If the energy crisis continues to ferment, the output of MDI and TDI in Europe may decline, which is good for domestic product exports.
Soda ash: If the domestic real estate market is gradually improved, it will be good for the demand for flat glass to be repaired. At the same time, the new capacity of photovoltaic glass will also drive the demand for soda ash.
Vitamins: The production capacity of vitamin A and vitamin E in Europe accounts for a large proportion. If the European energy crisis continues to ferment, the output of vitamin A and vitamin E may shrink again, supporting the price. In addition, the domestic pig breeding profits have gradually improved in the near future, which is expected to stimulate the enthusiasm of farmers to supplement, thus stimulating the demand for vitamin and other feed additives.
Phosphorus chemical industry: With the release of winter storage demand for fertilizer, the price of phosphate fertilizer is expected to stabilize and rise; At the same time, the demand for iron phosphate for new energy vehicles and energy storage continues to be strong.
Tires: In the early stage, as the tires stranded in American ports were converted into dealer inventory, the inventory of American channels was high, but
With the promotion of going to the warehouse, the export orders of tire enterprises are expected to recover gradually.
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Post time: Jan-03-2023