As Europe debates price cap, China, India scoop Russian oil at 40% discount
– Nigeria struggles to benefit amid production constraints
The European Union has once again failed to agree on a price cap for Russian crude oil amidst sanctions placed after the Russian invasion of Ukraine. Meanwhile, reports note that China and India have seized on the opportunity to scoop up massive amounts of Russian crude at a discount of $33.28 per barrel to the international crude oil benchmark, Brent.
As of the time of writing this report, Brent traded at $85.57 per barrel after dropping 1.51% while the United States Western Texas Intermediate traded at $79.98 per barrel. Nigeria’s flagship, Bonny Light, traded at $85.49 per barrel. EU eastern members such as Poland, Estonia, Latvia, and Lithuania reportedly objected to the proposed $60-$70 per barrel cap for Russian crude at the bloc’s latest meeting.
Valdis Dombrovskis, Vice President of the European Commission was quoted as saying on Bloomberg TV, “If you put the price cap too high, it doesn’t really bite. Oil is the biggest source of revenue for the Russian budget, so it’s very important to get this right so it really has an impact on Russia’s ability to finance this war.”
Oil strategist at Bloomberg, Julian Lee said that in contrast to a year ago when Urals, Russia’s flagship variant traded $2.85 below Brent, it now traded at $33.85. As Urals is the main blend exported by Russia, the Eastern European nation could be losing about $4bn per month in energy revenues according to analysts at Bloomberg.
Indian and Chinese imports from Russia have surged in the last year. Reports reveal that India expended $5.1bn on Russian oil, gas and coal between February and May, more than five times the same amount in the corresponding period of 2021. China on the other hand was the biggest buyer as it spent $18.9bn through the end of May, from less than $10bn in the same period of last year. Experts have noted that US sanctions and pleas have been ignored by Indian and Chinese authorities for simply economic reasons; the oil is cheap!
According to the International Energy Agency, Russian crude had been sold at record discounts since the war started. Firms like Glencore and Vitol dropped prices by as much as $30 and $25 per barrel respectively for the Urals blend. Head of trade at Vogel Group, Samir Kapadia was quoted as saying by CNBC, “Today, the Government of India’s motivations are economic, not political. India will always look for a deal in their oil import strategy. It’s hard not to take a 20% discount on crude when you import 80-85% of your oil, particularly on the heels of the pandemic and global growth slowdown.”
Nigeria however has been unable to benefit from the global hydrocarbons windfall in the aftermath of the Russia-Ukraine war. Lingering issues bedevil the country’s oil and gas industry such as oil theft and vandalism. Production rose beyond one million barrels since July according to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) after languishing between 980,000 and 1m barrels per day between August and October. It was reported that Nigeria LNG suffered a $7bn year-to-date loss due to gas supply constraints as feedstock from oil production was hampered by theft. The country’s prime LNG exporter was forced to declare force majeure on some of its facilities after the heavy flooding in October. Oil sector contribution to Gross Domestic Product (GDP) has also failed to recover to pre-pandemic levels of 9.77% as data from Statista and National bureau of Statistics (NBS) place it at 5.19% in Q3 2022.
