A New Turmoil for the Russian Oil?

A New Turmoil for the Russian Oil?

Given that a barrel of "Urals grade" oil (the standard blend of Russian oil) dropped to only $37.80 yesterday in the Baltic Sea export port of Primorsk, while the global oil benchmark "Brent" remained at $78.57, it became clear that something is happening that cannot be explained by the agreement of the G7 members to ban the transportation of Russian oil at the international level if purchased at a price higher than 60 dollars, Jutarnji list reported.

The so-called "Urals grade" represents by far the largest chunk of Russian oil exports.

As interpreted by Gregory Brew from Yale, who studies the history of the oil trade, the drop in the price of Russian "Ural" oil was by far the most influenced by the drop in demand in China. Bru interprets that this drop in the price of Russian oil is not a big surprise because "... it reflects softer conditions on the entire market. There is uncertainty about the global economy and about China's zero-Covid policy".

The expert from Yale notes that the market still has a dominant influence on the price of Russian oil, and the current market is characterized by a drop in demand. It is not about how much Russia increases or decreases oil production, nor how much the West wants to reduce Russian export revenues, but about relations in the international oil market. If there is a strong opening in China and an increase in demand, there is no doubt that in that case, the price of Russian oil will rise strongly again.

If there is no rapid increase in demand for Russian oil by China and India, Vladimir Putin's regime will face a drastic drop in export revenues, which will make it even more difficult to finance the war in Ukraine and cause a series of internal problems.

According to Bloomberg, it is uncertain what Russia's reaction might be if the price of "Ural" remains at a level below 40 dollars per barrel. The only thing they can do is to reduce production in order to raise the price, but it is questionable whether they can significantly increase their income to a level that guarantees the financial stability of Russia.

Putin and his associates are probably horrified by the fact that with all the international geopolitical tension, which should otherwise rocket the price of oil very high, they suddenly have a problem with - the market.

Although many in the West began to complain after the beginning of the conflict in Ukraine that the market principles in the energy market are dysfunctional, it could easily happen that they will forget their anti-market manifestos relatively quickly because it is the relationship of global supply and demand that is beginning to regulate what has failed politicians at marathon price capping meetings.