EU sanctions will affect Russia's crude exports when they take effect on December 5. What could be the impact on the markets of such a strategy?

Europe (EU) consumes about 12 million barrels per day of oil. Most of this oil is imported, in particular from Russia (about 5 million barrels per day in 2021, of which nearly 2 million will be in the form of oil products).

For many months, Russia has reduced its crude oil exports to Europe and considerably increased its exports to China, India and a few other countries such as Egypt. This is an excellent situation for these importing countries because Russia has to grant a significant discount on prices (of the order of 30 dollars per barrel) to find takers. This is the consequence of the sanctions that are likely to affect these transactions.

The crude oil market may therefore be only slightly affected by the European embargo. The quantities of crude oil that will no longer be taken by Europe will go to China, India and some other countries. As a result, imports to China and India from the Middle East and Africa will be lower and quantities will become available for Europe.

The situation is more complex for oil products (gasoline, diesel). Europe imports very large quantities of products, especially diesel, because its refineries are unable to keep up with demand. Diesel fuel comes from various countries but especially from Russia.

The recent events have caused very strong tensions on the product markets and in particular on the diesel market. Supply channels have had to be completely revised, leading to very sharp price increases. While the price of crude oil (around $85 per barrel today) remains "moderate" compared to the prices observed at the beginning of the year, the price of diesel remains very high because refining margins (the difference in value between the average price of products leaving the refinery and the price of crude oil at the refinery gate) have reached stratospheric levels: $10 to $20 per barrel or even more over the last few months, for margins which traditionally do not exceed a few dollars. Hence the high prices at the pump.

For the Financial Times, the coming week could shake up the global oil market. What could cause this situation? Do you agree with this assessment?

There is likely to be some disruption of supply channels. Europe will have to import crude oil from destinations further away than Russia (Africa, Middle East, etc.). The consequences in terms of cost are likely to be limited, as transport costs do not usually exceed a few dollars per barrel. Of course, the situation could be quite different if there were tension on the availability of ships. But the demand for oil is relatively weak at the moment because of the threat of recession that hangs over the planet. It is symptomatic to note that the reduction in production quotas decided by OPEC+ on 5 October (2 million barrels per day, i.e. 2% of world demand - the largest reduction ever decided by the producing countries) has not resulted in an increase in prices as expected. On the contrary, the price of crude oil has been falling ever since.

Operators have probably largely anticipated the new situation. However, the commodity market could be under pressure and the prices of some commodities could rise.

How sensitive is the price of oil to geopolitical events?

It is important to remember that the extremely high prices we are experiencing, in Europe in particular, date back to 2021. Between the beginning and the end of 2021, before the invasion of Ukraine, the price of natural gas was multiplied by 6 and the price of electricity, which is extremely volatile, reached the current price by the end of 2021.

These price increases are simply due to a lack of production capacity and the functioning of the European markets, at least for electricity, which needs to be reviewed.

In 2022, Russia's invasion of Ukraine reminds us that Russia is a key country on the energy scene (10% of the world's crude oil production, 18% of the world's gas production, significant coal production). 2022 marks the return of geopolitics to the energy scene.

An OPEC+ meeting is scheduled for Sunday. What could be the consequences?

Nothing is written, but it is unlikely that any action will be taken on oil production. A further reduction in production would be a real declaration of war to the consumer countries, including the poorest countries that suffer from a high oil bill.

The current price of crude oil, although somewhat lower than OPEC's desired price, is nevertheless necessary for most producing countries to balance their budgets.