Traders See More Turbulence, Skeptical About Sanctions

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Senior executives at top energy trading companies expect turbulence and high prices to persist in the foreseeable future, as new EU and US sanctions intensify the fallout from Russia's war in Ukraine.

Speaking at the Energy Intelligence Forum in London, Vitol chief Russell Hardy spoke of a period "unprecedented uncertainty" triggered by the collapse of Russia's gas exports to Europe and upcoming sanctions on Russian oil exports.

"Everybody is worried about the next six months," he said, stressing that while global oil supply appears to be in fair shape, there are unanswered questions about demand as the possibility of a global economic recession looms.

Russell said the sharp fall in Russian gas supplies and the resulting surge in gas prices had pushed industrial demand in Europe down by 20%-25%, predicting that there would not be enough LNG available to replace the lost volumes.

He said it was hard to envisage market conditions changing much over the next 12 months, but he predicted that demand in China would rebound next year, spurring greater confidence across Asia.

Speaking about the proposed G7 price cap on Russian oil — the brainchild of the US Treasury — Hardy said details were lacking and stressed that existing EU sanctions were already too complicated. "A lot of detail and analysis is required," he said.


An EU embargo on Russian crude imports is set to take effect on Dec. 5, with an embargo on imports of refined products following on Feb. 5. No date has been set yet for the introduction of the proposed price G7 cap.

Torbjorn Tornqvist, the head of Gunvor, was also skeptical about the price cap and warned of future diesel shortages in Europe as the upcoming EU products embargo takes around 1 million barrels per day off the market.

He said oil supply remains tight with little scope for prices to fall significantly over the next year. Sky-high natural gas prices in Europe have led to an erosion of demand that could spread to Asian markets, he told the Forum.

Tornqvist does not expect Russian gas supplies to Europe to be restored in the future, and said the market was already anticipating that flows of Russian gas via Ukraine — which have continued despite the war — would come to a halt at some point.

Russia had already cut off exports to Germany — its largest customer — via the Nord Stream-1 pipeline before the line was damaged in an apparent sabotage attack.

Westward flows of gas to Poland and Germany via the Yamal-Europe pipeline were also halted earlier this year.


Ben Luckock, joint head of oil trading at Trafigura, said greater clarity was needed about the price cap plan and warned that it would not work without Russia's consent.

He said the multiple sanctions packages introduced so far by the EU had caused no end of confusion for market players.

He predicted that European gas prices would remain elevated and that the situation could be far worse toward the end of next year,.

"We might dodge a bullet this winter. Next will be much tougher ... We're miles from out of the woods," he told the Forum.

The trio of trading executives acknowledged that the new sense of urgency around energy security had made the transition to green energy less of a priority for the time being, but they also said that it had not stopped the process.

Hardy said there is is a "massive acceleration" in Europe to get new renewables projects off the ground, while Luckock said there had been a temporary "step back" in the transition to renewables, but that the underlying momentum had been preserved.

Tornqvist stressed the huge scale of the challenge ahead — given that 85%-87% of fossil fuels still need to be replaced — but he said the transition was irreversible.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Oil Supply, Gas Supply, LNG Supply, Trade, Oil Trade, LNG Trade, Sanctions, Policy and Regulation, ENERGY INTELLIGENCE FORUM 2022, Ukraine Crisis
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