Oil markets may face headwinds in 2023 as fresh Western sanctions and a price cap on Russian oil come into effect, leading to an output squeeze in global supplies and putting upward pressure on oil prices.
Demand from China is expected to pick up as zero-COVID restrictions ease, adding to the tightness in energy markets.
The next round of European Union (EU) sanctions on Russian oil products are due to take effect on February 5. It comes in response to the country’s invasion of Ukraine, and will affect refined petroleum products such as diesel.
It follows an EU embargo on seaborne imports of Russian crude effective December 5 and a G7 move to cap the country’s oil at $60 a barrel. Both measures aim to blunt Moscow’s export revenue while still keeping Russian crude flowing through global markets to prevent a supply shock.
According to analysts, the next round of sanctions — combined with a rebound in Chinese demand as zero-Covid restrictions ease — will likely squeeze oil markets and push prices higher. Russian crude output could fall by 1 million barrels a day
“We expect the European ban on seaborne Russian crude and refined products (to come into force on February 5) to result in a drop of Russian production of at least 1 million barrels per day in 2023, with Russia having difficulties in finding alternative markets,” said Giovanni Staunovo, a commodity analyst at UBS Global Wealth Management.
Indeed, Russia has threatened it would slash production by up to 700,000 barrels a day in retaliation to the G7 price cap, suggesting another potential hit to the country’s oil output, according to Business Insider.
