Last week, the European Union announced its 18th sanctions package against Russia, something that could have an impact on the oil industry both abroad and in the Lone Star State.
For some analysis on how big of an impact that will be, the Texas Standard was joined by Matt Smith, energy analyst for Kpler. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Tell us about what it is that the EU is doing exactly and what they’re trying to accomplish with these sections.
Matt Smith: Well, there’s a number of things that are happening here. One of the key ones relates to crude and to products as well, actually.
There’s a crude price cap that is being put in place. It’s kicking in on the 3rd of September. What they’re essentially doing is lowering that price cap from $60 a barrel to $47, so the price that Russia gets for selling that oil. So that’s the key piece of it.
The second one relates to the import of refined products derived from Russian crude. This has the potential to have a much bigger impact on refined products, which are diesel, gasoline, jet fuel.
And the key thing with this, is that you’ve got – because you’ve had the EU that has been taking Russian crude – what is happening instead is that Russian crude is going elsewhere, being refined, and then sent back into Europe. And so they’re trying to close that loophole here.
And so that’s it. That’s a key element of things. So there are a couple of things in the works here, as well as a number of companies and tankers being sanctioned as well.
Okay, so trying to do something about closing a loophole that’s allowing Russia to still profit from their oil industry.
Here we are on a Monday after the announcement of these sanctions. What does this announcement seem to be doing to the market?
Well, not too much at the moment. And there’s a few reasons for that.
So with the price cap, there’s been one in place already and the next one doesn’t kick in until September. The refined product side of things, there’s a six-month moratorium on that in the first place. And so that’s not gonna come into effect until January of next year, which given how much things change, that seems a very, very long way away.
So there’s that piece of it, but then there’s also just a lot of skepticism surrounding how you kind of enforce this price cap as well. So the impact is really not being felt yet and won’t be for a number of months, particularly for the refined product side of things, if at all.
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You know, maybe I’m missing something here, but if you place a cap on Russian oil prices, don’t you just encourage oil buyers to chase the lower prices? I mean, could this mean that Russia gets to sell more oil, at least potentially, and the real impact is on producers like Texas?
There’s always a winner and a loser from these situations, right? So the loser in theory is Russia because it’s getting less revenue, but it could also sell more.
But the flip side of it, there is the beneficiary, which is going to be those countries that are buying this crude – sort of like India, China, etc. And so they do benefit.
It’s just a little bit of a challenging situation there, just because they kind of model how that price cap is implemented. You can bundle it together to make things kind of much more opaque.
Okay, well, so I guess there’s a big question mark about how much of an impact this is really going to have on Russia.
But how does this jive with the U.S. policy – of course, not just the attempt to end the war in Ukraine, but more broadly? I mean, is the president concerned about the ripple effects on oil for the U.S.?
Absolutely. And so he’s looking at threatening secondary sanctions on the buyers of Russian oil.
But there’s also the thing where that goes completely against what he wants to do, right? He doesn’t want to take Russian oil out of the market because that will cause oil prices to rally and prices at the pump to charge higher as well, which is in complete contrast to what he wants. He wants lower prices at the pump ultimately here.
You know, before we let you go, I have to ask, here we are more than halfway through the summer, Matt. And I suspect we’ll be seeing more people hit the road and try to squeeze in a vacation before September hits. And hurricane season, we’re in the middle of it. So far, pretty quiet.
How do gasoline prices for consumers this year seem to compare with recent years? And what do you make of where we are?
So knock on wood here, you know, the hurricane season hasn’t caused any kind of issues just yet, but we’re still ramping up, right? We peak in late August and early September, so we’ve still got a ways to go.
But in terms of prices at the pump, the national average right now is $3.15. This time last year, it was $3 50. So it’s $0.35 lower on a gallon.
It’s the same for Texas as well. Texas last year was $3.10 on this day last year. Now it’s at $2.75 and so there is that benefit and that will be being felt in people’s pocketbooks and, because of that, we’re likely to see more people going on a summer vacation this year.
