Europe’s Energy Crunch
Russia Tries Another Shot With the Energy Weapon
Last year, Russia wielded natural gas supplies as an economic weapon against Europe in retaliation for its military assistance to Ukraine. That move failed to precipitate an energy crisis in the continent, but now Moscow is having another go with oil.
Next month, Russia will cut production by 500,000 barrels a day, or about 5%, in response to the G-7 price cap on its exports, Deputy Prime Minister Alexander Novak announced on Friday. Oil jumped by almost 3% in London.
It’s unclear whether this intervention will have a more punishing impact on Europe than last year’s cut in gas exports.
The market for oil is far more global than natural gas. A cut in Russian crude exports, most of which were already going to buyers in Asia, doesn’t target Europe directly, beyond the broad economic effect of higher prices.
One area where the bloc could be vulnerable is for diesel. Until an import ban came in a few days ago Russia was Europe’s largest supplier of the fuel, and re-routing global supply lines to ensure everyone has enough supply could be more challenging than for crude oil.
Stockpiles Revised Higher
Inventories of gasoil/diesel in northwest Europe set to fall through May
There are signs that Europe may be able to weather the changes in diesel supply. Moscow’s squeeze on natural gas supplies last year didn’t lead to blackouts or shortages thanks to Europe’s concerted effort to stockpile the fuel before winter, and a lot of luck with warm weather.
An influx of the diesel into northwest Europe before the Feb. 5 import ban has helped swell the bloc’s supply buffer. Stockpiles of diesel-type fuel in northwest Europe reached 227 million barrels last month, according to estimates from Wood Mackenzie Ltd., a 3.65% upward revision from its prior forecast.
Inventories are expected to drop more quickly than previously forecast as the ban on Russian cargoes plays out, according to James Burleigh, principal analyst at Woodmac. That could push European diesel prices higher, but will also attract additional supply from more far-flung suppliers, he said.
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