Oil price cap battered Russia's Q1 revenue, buyers should seek steep bargains: Yellen

The G7 price cap on Russian crude and oil products exports have been effective in restricting Moscow's revenues and some of the countries regularly purchasing Russian sweet and sour crudes should negotiate steep discounts, US Treasury Secretary Janet Yellen said May 11.

A few months into its implementation, we see clear signs that the price cap is working. The Russian government's oil revenues from January to March this year were more than 40% lower than a year prior, Yellen said at a press conference held ahead of the G7 Finance Ministers and Central Bank Governors Meeting scheduled for May 11-13 in Niigata, Japan.

A $60/b cap on seaborne Russia-origin crude oil has been in place since Dec. 5, while a $100/b cap on imports of Russian refined products that typically trade at a premium to crude, such as diesel, kerosene and gasoline, and a $45/b cap on products like fuel oil that generally trade at a discount to crude, went into effect Feb. 5.

"Importantly, global oil markets have remained relatively stable since the imposition of the crude oil cap. The price cap has helped stabilize the global economy, just as it hurt Russia's ability to wage its illegal war," Yellen said.

The Treasury Secretary said members of the price cap coalition are prohibiting or phasing out imports of Russian oil.

In Asia, Japan and South Korea have been slashing imports of Russian crude oil. Japan received only 8,308 b/d of Russian crude in the first quarter, down 92.4% from the same period a year earlier, latest data from the Ministry of Economy, Trade and Industry showed.

South Korea, the region's third biggest crude importer, did not receive any cargoes from Russia in March for the fourth consecutive month, latest data from state-run Korea National Oil Corp. showed.

South Korea's refining industry is on track to register no Russian crude imports for the entire year. Regardless of the $60/b price cap set by the G7, South Korean refiners prefer to avoid trade, logistical, legal and financial complications and maintain a good corporate reputation, S&P Global Commodity Insights reported earlier.

Encourages big discounts

For active and regular buyers of Russian crude in Asia and other regions, Yellen urged the countries to save on their oil import costs by taking advantage of the price cap to negotiate steep bargains.

Chinese independent refiners have been purchasing low sulfur Far East Russian grades, including ESPO Blend and Sokol, as well as high sulfur Russian Urals crude at discounts in the range of $5-$15/b against ICE Brent futures on a DES Shandong basis over the past several months, S&P Global has reported.

China's overall imports of Russian crude oil jumped 12.9% to 2.27 million b/d in March from the previous record set in February, latest data from the General Administration of Customs showed.

The new record also marked the first time a single supplier's monthly crude deliveries to China crossed 2.2 million b/d, according to historical GAC data. The previous monthly high by a single supplier was 2.17 million b/d when China imported from Saudi Arabia in May 2020, the data showed.

India imported almost 2 million b/d of Russian crude in April, according to tanker tracking data, a 14% jump on March and a fresh high for Russian crude flows into the country.

Indian refiners' purchases of medium-sour diesel-rich Urals crude have remained steady in the last few months but they have ramped up buying other Russian grades like ESPO Blend, Novy Port, Sokol, Siberian Light, and even some Arctic grades, according to analysts at S&P Global. Traditionally relying on crude imports from the Middle East, West Africa and the US, Indian refiners had imported just 1% of their crude from Russia in 2021.

Steps to prevent sanctions evasion

This year, a central piece of G7's strategy is to take further actions to disrupt Russia's attempts to evade sanctions, Yellen said.

"Our three-pronged approach involves improving information sharing and coordination among our allies and partners; putting pressure on companies and jurisdictions that we know are allowing or facilitating evasion; and identifying and shutting down specific channels used by Russia to equip and fund its military," she added.