The Bear/Bull Case in the Russian Oil Ban

Oil markets have significantly recovered from the upside shock of two weeks ago when the US, the UK and Australia banned importation of Russian crude and product. In part that’s because Europe hasn’t followed along, and neither has Russia embargoed Europe, so a shock to global markets was avoided at a time when storage is at an all-time low. That said, a ban in Europe would likely be a bear case for crude prices. Europe could not easily replace the 1 million barrels per day it gets from Russia by pipeline, so while it would likely throw Europe into recession, it would also reduce global demand. Russia could sell the 1.3 million barrels it sends to Europe by ship in eastern markets, but only with significant price discounts, which would ripple through global markets and reduce oil prices overall as more and more volumes seek new destinations. The bull case for prices arises if all, or many, or Russia’s customers ban imports as well – then as much as 4.7 million barrels per day of Russian oil are effectively removed from supply .To replace that, almost all the visible spare capacity and potential production growth in the world would have to be mobilized to fill the gap. The status quo, without further bans, impounds a risk premium in prices that should evacuate if the Ukraine crisis is resolved.