December 5, 2022, Sanctions -- Tracked Here

January 11, 2023: current estimates, EU sanctions could cost Russia $300 million / day. Charles Kennedy.

January 2, 2023: India, Russia and sanctions. 

December 23, 2022: Russian exports in November, 2022, fall to lowest level since January, 2021.

December 22, 2022: estimates of the Russian economy.

• NPR, BBC, others reporting that the sanctions aren't working;

December 15, 2022: China update. China waiting before taking more Russian crude oil.

December 14, 2022: update with baseline.

December 6, 2022: December 5th Sanctions (D5S) -- one day later:

December 6, 2022: US exports to Europe, just before sanctions went into effect, link here -- 

• last week, U.S. exports of crude oil and petroleum products hit 11.8 million barrels per day, marking an all-time high.
• the record came just days before the EU embargo on imports of Russian crude oil by sea came into effect.
• seaborne exports of U.S. crude oil exceeded 7.1 million bpd, which also marked an all-time high.
  

December 5, 2022:

• baseline numbers before the sanctions went into effect:

CNBC: August 20, 2022.

From the linked article, again, before the December 5th sanctions:

Imports of Russian oil, including supplies pumped via the East Siberia Pacific Ocean pipeline and seaborne shipments from Russia’s European and Far Eastern ports, totaled 7.15 million tonnes, up 7.6% from a year ago.

Still, Russian supplies in July, equivalent to about 1.68 million barrels per day (bpd), were below May’s record of close to 2 million bpd.

China is Russia’s largest oil buyer. Imports from second-ranking Saudi Arabia rebounded last month from June, which was the lowest in more than three years, to 6.56 million tonnes, or 1.54 million bpd, but still slightly below year-ago level.

How much oil does the EU still import from Russia, The Indian Express, September 21, 2022, before the December 5th sanctions:

Under the looming ban, the EU will need to replace an additional 1.4 million barrels of Russian crude.

What are the alternatives available?

Russian crude oil imports into the European Union and United Kingdom fell to 1.7 million barrels per day (bpd) in August from 2.6 million bpd in January, but the EU was still the biggest market for Russian crude.

The UK has already stopped importing Russian crude following Moscow’s invasion of Ukraine, and the EU will ban imports from December to strip the Kremlin of revenue to fund the war.

Imports from the United States have replaced about half the 800,000 barrels of lost Russian imports, with Norway providing around a third.

For India, link here. 

Russia has become India's top oil supplier in October, surpassing traditional sellers Saudi Arabia and Iraq.

Russia, which made up for just 0.2% of all oil imported by India in the year to March 31, 2022, supplied 9,35,556 barrels per day (bpd) of crude oil to India in October — the highest ever.

It now makes up for 22% of India's total crude imports, ahead of Iraq's 20.5% and Saudi Arabia's 16%.

India imported just 36,255 barrels per day of crude oil from Russia in December 2021 as compared to 1.05 million bpd from Iraq and 9,52,625 bpd from Saudi Arabia

There were no imports from Russia in the following two months but they resumed in March, soon after the Ukraine war broke out in late February.

India imported 68,600 bpd of Russian oil in March while it increased to 2,66,617 bpd in the following month and peaked to 9,42,694 bpd in June. But in June, Iraq was India's top supplier with 1.04 million bpd of oil. Russia in that month became India's second biggest supplier.

The Indian government has been vehemently defending its trade with Russia, saying it has to source oil from where it is cheapest.

"In FY22 [April 2021 to March 2022], the purchases of Russian oil was 0.2% [of all oil imported by India]. We still buy only a quarter of what Europe buys in one afternoon," Oil Minister Hardeep Singh Puri told CNN in Abu Dhabi last week. "We owe a moral duty to our consumers. We have a 1.34 billion population and we have to ensure that they are supplied with energy...whether it's petrol, diesel." What caught my eye(s) with regard to India:

We (the Indian) still buy only a quarter of what Europe buys in one afternoon.

This is a battle within OPEC+: Saudi Arabia, Iraq, and Russia. US unaffected.

Russia will be selling their oil at a heavy discount.

So, those are the baseline numbers. With the December 5, 2022, sanctions, note:

• the sanctions affect seaborne crude oil deliveries, not pipeline crude oil;
• in addition to the "global" December 5th sanctions, the EU imposed a $60/bbl cap on Russian crude oil.
• based on "talk," the $60-cap may be a bigger problem for Russia than the December 5th sanctions (tag: D5S).
  

There are two "arenas":

• political arena: I pay little attention to this arena:
• investors arena: I pay a lot of attention to this arena.

Political:

• do I care that there will be a lot of cheating by both sides, by both Russia and the EU? No.
• do I care that the "devil" is in the details? No.
• am I surprised that when US gasoline prices were spiking President Biden did not ban US crude oil exports? Yes.
• am I surprised that President Biden signed off on a huge off-shore export terminal south of Texas? Yes.
  

Investing:

• do I pay attention to the fact that US oil companies are replacing about half of the Russian oil the EU is not buying? Yes.
• am I surprised that when US gasoline prices were spiking President Biden did not ban US crude oil exports? Yes.
• am I surprised that President Biden signed off on a huge off-shore export terminal south of Texas? Yes.
• will some US oil companies do better than others in this environment? Yes.
  

With regard to cheating:

• some folks are watching Russia's tanker shipments and how Russia will get around the sanctions:
• some folks correctly note that India and China will make crude oil buying decisions based on best price;

Comments:

• folks forget that both India and China have finite on-shore oil storage facilities
• yes, both countries can store oil off-shore in those same tankers
• as "big" as the economies of India and China are, they can only grow so fast;
• China's GDP is actually falling
• China: Covid-19; Biden's IRA essentially cuts off China at the knees; when Apple leaves, "everyone" else also leaves;

The pie:

• global crude oil consumption will increase only marginally over the next few years;
• the size of the pie stays relatively the same size
  
• the portions of the pie? LOL.
• Russia loses most of Europe; all of the UK;  Russia's slice of the price gets significantly smaller;
• US, right now, is replacing one-half of what the EU is no longer getting from Russia (and this is before the December 5th sanctions
• the US slice of of the pie gets significantly bigger
• Saudi Arabia: could be the biggest loser
• Saudi Arabia: not set up logistically to supply EU
• Saudi Arabia: focused on China; Xi flying into Riyadh today (December 5, 2022) -- fact check;
• Saudi Arabia: can't afford to cede China to Russia
• tea leaves: expect to see a civil war within OPEC+ as Saudi takes on Russia (China); Iraq takes on Russia (India)
  
• even before the sanctions, Saudi's foreign exchange reserves dropped month-over-month
• Saudi's policy: "Saudi first"
• US policy: no more drilling
• no more drilling?
• less CAPEX
• short term: huge margins for the US oil companies;
• long term: US oil companies will do just fine

One last comment:

• this is crude oil;
• we haven't even discussed natural gas which might be an even bigger story than crude oil for the US

Okay, one last comment:

• will some US oil companies do better than others in this environment? Yes.
• the big five are better positioned to sell their oil to the EU than smaller US independents
• Canada has no export terminals; maybe TransMountain is the exception; not yet on-line

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them.   

WTI:

• December 2, 2022: about $78
• December 5, 2022: $81.06; hit $82 in early morning trading before dropping back
• December 5, 2022, 10:14 a.m. CT: WTI drops back to $79.88.
  

Note: while writing the above, it was reported that Russia will sell crude oil and oil products to Pakistan at a discount. Link to Charles Kennedy.

• the political story: Pakistan thumbs its nose at the EU and the US
• the financial story: from the linked article -

Many large customers in Asia haven’t joined the price cap mechanism, but China and India, for example – Russia’s top crude oil buyers now – are demanding steep discounts for the Russian grades.

Is this a win-win-win for everyone?

So, at least we have some baseline numbers. I will come back to this periodically with a more in-depth look eight months from now -- during the height of the US driving season.