The Game Changes for Russian Crude

The discount in Russian oil exports has almost entirely evaporated. The West’s $60 price-cap on Urals crude has proven unenforceable, especially against a poor nation like India which has emerged as the dominant new buyer since the invasion of Ukraine. Ind1a’s refineries have borne the sunk costs of adapting to Russian crude, and no longer require the discount they could command two years ago. Now Ukraine is attacking refining and other infrastructure on Russian soil and making a large dent in export capacity. This risks a black swan event in which Russia could use nuclear weapons in retaliation for attacks on its homeland with Western arms. Oil prices are not higher because the Biden administration has stopped enforcing sanctions on Iran and is making only tiny moves to refill the drained SPR. A Trump win in November would increase supply by deregulating the domestic industry, but reduce it by clamping Iran sanctions back into place. We are nudging up our trading range for Brent to $75 to $90.