The International Energy Agency thinks that Russia is going to have a hard time finding new takers for the oil that Europe will no longer be buying after December 5, when a new EU embargo on Russian crude enters into effect - even if it lowers the price. IEA's assessment echoes the views of U.S. Treasury Secretary Janet Yellen, who has predicted that Russian oil producers may have to shut in some capacity after the embargo enters into force.
S&P Global estimates that in total, 2.5 million barrels per day (bpd) of Russian oil and oil products will have to find a new home once the EU ban enters into effect. IEA has a similar prediction for oil and middle distillates (not including gasoline), forecasting that the unwanted Russian petroleum output will be a combined 2.1 million bpd in December.
The EU is already tapering off its imports of Russian oil. As of October, the EU has reduced its purchasing by 1.1 million bpd relative to prewar levels, and its imports of Russian diesel have fallen by about 50,000 bpd, according to IEA.
Russia has had considerable success to date in marketing these foregone exports to new buyers, thanks in part to its willingness to be flexible on price. However, "no significant buying from Russia outside China, India, and Türkiye has appeared despite massive discounts," noted IEA. This raises questions about whether the alternative market for Russian crude might be large enough to absorb more of Europe's share.
In recent interviews, U.S. Treasury Secretary Janet Yellen has suggested that Russia may be forced to shut in production capacity, especially if it does not cooperate with a proposed global oil price cap - a new, calibrated sanctions system to restrict the price of seaborne Russian oil exports while allowing the crude to continue to flow.
"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," she told Reuters. "They're going to be heavily in search of buyers. And many buyers are reliant on Western services."
The cap mechanism would make those Western services - shipping, trade finance and P&I insurance - unavailable unless the oil is sold below a certain price threshold. If Russia and its customers can find non-Western alternatives for tanker tonnage and insurance, there will be no need to comply with the price cap, and several importing nations are expected to pursue this route (India has already signaled its intentions). If that effort falls short, production shut-in could result, reducing the global supply of oil in an already-tight market.
Pain at the pump for truck drivers is set to continue in a tight diesel market, according to IEA - and the upcoming EU embargo on Russian diesel will not help. "The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers," IEA warned. This could be good news for product tanker operators, who may see tonne-mile demand spike as Europe hoovers up cargoes from far-flung refiners.
New refinery capacity additions may help to ease the burden over the next few years, IEA predicted. In the meantime, the price hike may reduce emissions: the global market is expected to buy and consume slightly less diesel in 2023 because the fuel is so expensive.