The international crude oil market kicked off the year with a significant development: As of February 5, local time, the European Union and the Group of Seven (G7) countries’ ban on Russian petroleum products, along with their price cap measures, officially took effect. This marks the third round of EU sanctions targeting Russia in the oil sector since the outbreak of the Russia-Ukraine conflict last year. Market investors are now seeking more information about the price cap and the ban on Russian refined oil products, and as a result, international crude oil prices experienced volatile downward movements last week.
　　Meanwhile, the supply-and-demand dynamics in the international crude oil market are also undergoing further changes. The global economy has shown resilience at the start of the new year; although growth is likely to continue slowing, the outlook doesn't appear as bleak as previously anticipated. In addition, China's oil demand and consumption are expected to rebound significantly, which is forecast to provide a positive boost to the international crude oil market.
　　Russia has launched countermeasures.
　　On the first anniversary of the Russia-Ukraine conflict, Western countries continue to impose sanctions on Russian petroleum products. In June 2022, the European Union decided to ban the purchase of Russian petroleum products—including gasoline, diesel, and fuel oil—via maritime transport. The ban took effect on February 5.
　　In December 2022, the European Union and the Group of Seven imposed a price cap of $60 per barrel on Russian oil exports. Specifically, if the selling price of oil exceeds the $60-per-barrel threshold, shipping insurance, financial services, and other related support will no longer be provided. Experts from the Russian side, however, argue that this ban will not cause significant damage to Russia. Meanwhile, Western countries will be forced to purchase fuel at higher prices; setting a price cap could only lead to oil prices soaring—as has already happened with natural gas prices.
　　On February 4 of this year, local time, the European Union and the Group of Seven announced plans to set two-tier price caps on Russian refined petroleum products. A price cap of $100 per barrel will be imposed on higher-priced products such as gasoline and diesel, while a cap of $45 per barrel will apply to lower-priced petroleum products. In response to these further sanctions, Russia has already introduced countermeasures. As of February 1, Russia has officially banned the supply of oil to legal entities and individuals that directly or indirectly use mechanisms setting price caps in their contracts.
　　U.S. Treasury Secretary Yellen stated that agreeing to set a new price cap on Russian petroleum products will help further limit Russia’s oil revenues on top of the price cap already established last December, while also ensuring the stability of global energy supplies. However, some experts are concerned that the series of sanctions imposed by the EU on Russian petroleum products will force Europe to purchase oil at higher prices, thereby further exacerbating energy costs and putting additional pressure on energy supply shortages in Europe.
　　Global crude oil supply and demand are facing more changes.
　　Since the outbreak of the Russia-Ukraine conflict last year, the international crude oil market has remained volatile. Coupled with the continued interest-rate hikes by developed economies such as the Federal Reserve, global economic downward pressure has intensified, adding further uncertainty to the supply and demand dynamics in the international crude oil market. Last year, international crude oil prices, denominated in U.S. dollars, once reached persistently high levels. The Biden administration in the United States repeatedly urged OPEC and its allies—the so-called “OPEC+”—to increase crude oil production in an effort to curb further rises in oil prices. However, “OPEC+” has remained unmoved.
　　At the meeting in February of this year, “OPEC+” decided to keep its policy of maintaining a production cut of 2 million barrels per day unchanged. Recently, in an interview with foreign media, Saudi Energy Minister Prince Abdulaziz bin Salman stated that the country will remain cautious about increasing oil production. The decision made by “OPEC+” last October to cut production by 2 million barrels per day has proven to be the right one.
　　From the current situation, the outlook for Russian crude oil supply and the outlook for Chinese crude oil demand are two key factors influencing the performance of the international crude oil market. Recently, IEA Executive Director Birol stated that preliminary indications suggest China’s economic growth rate may be faster than expected. Birol forecasts that about half of this year’s global oil demand growth will come from China.
　　The IEA’s latest January oil market report shows that global oil demand will rise by 1.9 million barrels per day in 2023, reaching a record high of 101.7 million barrels per day. Aviation fuel remains the largest driver of this growth, increasing by 840,000 barrels per day. Due to weak industrial activity and weather impacts, OECD oil demand fell by 900,000 barrels per day in the fourth quarter of 2022, while non-OECD oil demand rose by 500,000 barrels per day. In 2023, global oil supply growth will slow to 1 million barrels per day. The United States is the primary contributor to global supply growth; together with Canada, Brazil, and Guyana, it has set a new annual production record for the second consecutive year.
　　The IEA indicated that global crude oil demand is expected to recover slowly in the first half of 2023, meaning that crude oil inventories—which began to build up in the third quarter of 2022—will continue to rise. In the final quarter of 2022, despite OPEC’s production cuts and winter storms disrupting U.S. supply, supply still exceeded demand by more than 1 million barrels per day. Mild weather combined with sluggish industrial activity led to a decline in oil demand in Europe. Following the EU’s ban on Russian crude oil and the imposition of a price cap in December last year, Russian crude oil imports initially plunged sharply; however, exports have since partially rebounded, highlighting the high degree of uncertainty surrounding future prospects. Throughout December, Russian oil shipments averaged a daily decline of 200,000 barrels, falling to 7.8 million barrels per day, while total oil supply remained stable at 11.2 million barrels per day.
　　It is worth noting that if global economic growth can remain resilient, it will to some extent boost international demand for crude oil. According to the International Monetary Fund (IMF)’s updated forecast released in January of this year, the global economy is set to slow down this year but is expected to rebound next year. Despite the presence of headwinds, the outlook is not as gloomy as it was in October last year—a development that could mark a turning point: economic growth will bottom out and then begin to pick up, while inflation will also start to ease. In the third quarter of last year, global economic growth demonstrated surprising resilience—labor markets performed strongly, household consumption and business investment remained remarkably robust, and the economy’s adaptation to Europe’s energy crisis turned out better than anticipated. As a result, the IMF has slightly raised its forecasts for global economic growth in 2022 and 2023. Global growth in 2022 is now estimated at around 3.4%, with a projected slowdown to 2.9% in 2023 and a subsequent rebound to 3.1% in 2024. (Financial Times)

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