Russia's Oil Miracle

Despite bans and price-caps, Russia’s seaborne exports are at an all-time high, most of it directed to Asia where buyers command a significant price discount. As the seller at the margin, a desperate Russia has lowered the price structure of the global market, in part because Asian refiners process Russian crude into gasoline and diesel that is then sold to the West, effectively evading the bans. We expected this dynamic to emerge in the earliest days of the invasion of Ukraine. We knew the then-prevailing $140 Brent price couldn’t last, but we’ve been surprised by the depth and longevity of its depressing effect on prices – and in the face of record-low global stocks, falling investment and other factors that we had thought would point to Brent at $100. We now see current prices as a floor. But we have to recalibrate our estimation of the effect of Russian discounts and revise lower our 2023 price target to $85.