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Daily on Energy: Early reaction to the price cap from China and India, Russia’s biggest buyers

Washington Examiner logo Washington Examiner 12/5/2022 Jeremy Beaman, Breanne Deppisch
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WORD FROM RUSSIA’S TWO LARGEST OIL BUYERS: As the G7 Russian oil price cap comes into force, the two countries that have emerged this year as Russia’s biggest crude buyers—China and India—say they aren’t worried.

Neither country has committed to the cap, which prohibits any G7 or EU maritime service provider from servicing any tanker transporting oil priced above $60 per barrel.

That’s significantly higher than what China and India have been paying. Bloomberg reported last week that Russia’s flagship Ural grade oil has been trading at a $33.28 discount to Brent—or around $52 per barrel. Since the start of the war in Ukraine, Russia has offered steep discounts to China and India in a bid to reroute its oil exports to new buyers.

The cap is well below prices for Russia’s EPSO oil blend, however. EPSO was trading at $79 per barrel in Asian markets today—or almost one-third higher than the G-7 price cap, according to Refinitiv data.

That could put leaders in Beijing and New Delhi in an uncomfortable position, depending on how much of the EPSO blend they hope to procure.

Because the sanctions prohibit buyers from using Western shipping services to transport Russian oil priced outside the capped mechanism, they could either opt to finance any transports of the pricier blend themselves—a risky and expensive venture—or to rely on Russia’s growing “shadow fleet” for the transport.

But India and China project calm, for now: In the near-term, however, Asian buyers appear unconcerned.

Indian Oil Minister Hardeep Puri said today he expects the immediate impact of the price cap to be “nil.”

“I’m under no pressure and it is unlikely that I can be put under any pressure,” he told local news outlet BQ Prime. (India—which prior to the war relied on Russia for just 2-5% of its oil—imported record amounts of Russian crude in October, with Mosow becoming its top supplier in terms of barrels per day.)

And China's foreign ministry said it will continue its energy cooperation with Moscow on the “basis of respect and mutual benefit,” according to a Russian state news outlet.

Russian leaders are also preparing a decree to prohibit any Russian companies and traders from interacting with any countries or companies guided by the cap, Reuters reports, citing a source familiar with the discussions.

“It remains uncertain whether [the price cap] will ensure the smooth flow of Russian barrels to Asian markets or if there will be a material disruption,” RBC Capital Markets analysts said in a note. “Any clear indication that Russia is prepared to cut off oil exports could cause prices to spike in the coming days.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email or for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

MORE PRICE CAP DETAILS: The G7 price cap on Russian oil came into force today at a price of $60 per barrel—a level Western leaders say is high enough to deprive Moscow of its primary source of war revenue while still encouraging production.

Whether Russia will still continue to do so, however, remains to be seen.

The plan prohibits any EU or G7 shippers, insurance providers, or other maritime service providers from providing services to Russian crude shipped above the capped price.

Leaders will review the price of the cap every two months, beginning in mid-January, which will allow them to evaluate the efficacy of the measure, its implementation, and market developments.

…AND RUSSIA’S EARLY RESPONSE: Russia has threatened to stop selling oil to any countries under the price cap. Kremlin spokesman Dmitry Peskov said Moscow will not accept the terms and will release its official response after it completes a rapid analysis of the agreement.

In a Telegram post, Russia’s embassy in the U.S. described the cap as “dangerous” and insisted it will continue to find buyers for its oil. "Steps like these will inevitably result in increasing uncertainty and imposing higher costs for raw materials' consumers," it said.

"Regardless of the current flirtations with the dangerous and illegitimate instrument, we are confident that Russian oil will continue to be in demand."

Russian leaders are also preparing a decree to prohibit any Russian companies and traders from interacting with any countries or companies guided by the cap, Reuters reports, citing a source familiar with the discussions.

Russian Deputy Prime Minister Alexander Novak told Russian news outlet TASS that Moscow will “forbid” domestic companies to sell oil under the cap, even if it requires it to slow its production.

OPEC+ HOLDS OFF ON CHANGES: OPEC+ announced its decision yesterday not to adjust production targets further after agreeing to cut production by 2 million barrels per day in October, promising to call future meetings if developments (sanctions, the price cap, or otherwise evolving demand conditions) merit changes to its share of global production.

The cartel emphasized that its cut, which set off the Biden administration, was “purely driven by market considerations” and insisted it was “recognized in retrospect by the market participants to have been the necessary and the right course of action towards stabilizing global oil markets.”

Two months in oil: Brent closed above $93 per barrel on Oct. 5 when the production cut was announced, rising as high as $98.57 a month later.

Yet prices are down since and although they remain volatile, Brent opened under $86 this morning.

NORTH CAROLINA COUNTY MAY BE DAYS WITHOUT POWER AFTER ATTACK: Around 50% of power customers in North Carolina’s Moore County remained without power this morning, after two of its substations were damaged by gunfire Saturday in what authorities have described as a “targeted” criminal attack.

There were no immediate details released about a motive for the attack, though county officials said they are working alongside the FBI and the North Carolina State Bureau of Investigation to determine who was responsible.

“An attack like this on critical infrastructure is a serious, intentional crime and I expect state and federal authorities to thoroughly investigate and bring those responsible to justice,” Gov. Roy Cooper wrote on Twitter.

Duke Energy spokesman Jeff Brooks said outages could extend through at least Thursday, given the scope of damage and the sophistication of repairs needed.

Officials have declared a state of emergency, initiated a 9 p.m. curfew, and closed all county schools through at least Monday as they work to restore power and investigate the attack.

GREENS WARN PELOSI PERMITTING RIDER COULD COST HER LEGACY: Environmental and other liberal policy groups are warning Speaker Nancy Pelosi not to attach Sen. Joe Manchin’s permitting reform bill to must-pass legislation in these final days of the current Congress — or else tarnish her legacy on climate change.

Hundreds of environmental groups wrote Pelosi and Majority Leader Chuck Schumer this morning to dissuade the permitting reform rider, a strategy Manchin said weeks ago he would pursue again via the defense authorization bill in order to get his legislation passed.

“If Speaker Pelosi permits the attachment of the dirty deal to the NDAA, it will be one of her final acts as Speaker and threatens her credibility on climate,” green NGO Food & Water Watch said in a statement circulated this morning.

Manchin, Pelosi, and President Biden all backed the Manchin-Schumer deal that paved the way for Manchin’s bill, which would advance a suite of all-of-the-above-type reforms to speed up the siting, review, and permitting of energy infrastructure.

Democrats’ green energy agenda “will not stave off climate disaster if Congress simultaneously puts its legislative foot on the gas to expand fossil fuel production and false solutions like carbon capture, hydrogen combustion, biomass, biofuels, factory farm gas, and nuclear power,” the groups said.

There is general bipartisan support for speeding up new energy installations but the path to consensus looks narrow because of the wide ideological divide over which projects deserve primacy and which laws deserve edits.

EXEC OUT TO ‘DEMYSTIFY’ SHIFT TO EV FOR UBER DRIVERS: Uber wants to convince its millions of drivers to switch to electric vehicles, but one executive acknowledged the higher cost of EVs relative to internal combustion engines is the major barrier to making more progress.

“It just won’t happen if people are going to lose a chunk of their earnings by making the switch, however much they’re motivated to do it by other factors like wanting to reduce their environmental footprint,” Chris Hook, Uber’s global sustainability chief at the ride-sharing pioneer, told Euractiv in a interview.

Uber has appointed “ambassadors” among its team of drivers in Europe to market the benefits and feasibility of an ICE-to-EV switch. The ambassadors address things like “range anxiety,” or concerns over the more constraining refueling needs of an EV.

Transportation is the largest source of greenhouse gas emissions in the United States and a leading source in Europe, too — and transportation is Uber’s bread and butter.

It’s targeting 100% zero-emission vehicles by 2030 in Europe, where the EU is pursuing aggressive regulations on new ICE vehicles, and by 2040 in all markets.

The company has inked deals with manufacturers, including Kia and Nissan, as well as rental giant Hertz, to offer discounted purchasing and leasing of EV models for Uber drivers.

GAS AND DIESEL ON THE DOWNSWING: Average retail gasoline prices have fallen nearly half a dollar per gallon in the last month, according to the latest numbers this morning from data gurus at GasBuddy.

The drop has been enabled by lower oil prices. Brent crude fell over that same period by around $13 per barrel.

The current $3.36 per gallon average gas price is the first time in nearly two years that the national average has fallen below its year-ago level.

It’s good news on the diesel front, too. Prices are expected to fall under $5 per gallon on average this week.

Relief for the Biden team: Falling prices are exciting an administration that’s been preoccupied with the ebbs and flows of retail fuel markets all year long. The White House is crediting Biden’s emergency drawdowns from the Strategic Petroleum Reserve.

Unknowns ahead: A whole lot of things are developing in global oil markets all at once that may yet help send prices back up, between the EU’s embargo on most Russian oil imports, the G-7 price cap, and a changing COVID-19 management strategy in China.

EPA PROPOSES CRACKDOWN ON PFAS REPORTING EXEMPTIONS: The Environmental Protection Agency proposed a new rule today to eliminate a “de minimis” exemption afforded to industrial firms allowing them to avoid reporting presence of per- and polyfluoroalkyl substances in their products.

The rulemaking, part of the Biden administration’s larger regulatory crackdown on “forever chemicals,” would require all covered sectors to report PFAS no matter the size of concentrations.

PFAS, substances commonly used in a range of products, including firefighting foams and non-stick pans, can have degenerative health consequences and don’t break down easily.

Congress in 2020 added a number of PFAS substances to the Toxic Release Inventory, subjecting them to new regulation.

The Biden administration launched a “strategic roadmap” to address pollution from forever chemicals last year and in August proposed their inclusion on the list of federally regulated hazardous substances.

The Rundown

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9:00 a.m. The Nuclear Regulatory Commission will hold a meeting on the overview of advanced reactor fuel activities.


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Tags: Energy and Environment, Daily on Energy

Original Author: Jeremy Beaman, Breanne Deppisch

Original Location: Daily on Energy: Early reaction to the price cap from China and India, Russia’s biggest buyers


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