The EU is about to cause supply chain problems over the Ukraine War to ‘punish Russia’ with a price cap. Dr. Sal explains the latest repercussions of the Ukraine-Russia war and other factors that now come into play. The price cap and other factors will lead to a serious shortage of tankers and the worst energy crisis since 1979.
The EU has put a price cap on Russian oil. They will only allow Russian oil to be sold below a certain threshold that has not been identified. Their enforcement mechanism will be to forbid insurance companies from indemnifying any cargo over that price cap.
They won’t blockade or stop ships. They’ll do it through insurance.
They want to keep Russian oil flowing because they can’t afford the disruption it will cause. Cutting off all Russian oil would have ramifications across the entire globe.
The EU wants to punish Putin for his invasion of Ukraine, and they seek to do that by lowering the price of Russian oil, thereby not giving him windfall profits, which he hasn’t been getting anyway. Russian oil is already selling for about $20 a barrel cheaper than all other oil.
Considering the ramifications for the tanker market, Dr. Sal says this is going to have ramifications across the globe akin to the supply chain debacle.
The EU was getting most of its oil from Russia, a short haul. They need 1.5 million barrels a day from somewhere to make up for Russian oil. They are going to look to Iran and Venezuela. That means they need tankers to haul it for longer distances. There aren’t a lot of tankers to fill the need.
The Tanker Problem And the Worst Energy Crisis Since 1979
Tankers will have to be insured, and Russia is restricted.
Russia is preparing to haul its oil on a ghost fleet to the Middle East and Asia.
Ships are tied up right now, partly due to contango, where ships keep the fuel until prices go up. Diesel prices are high right now because the demand is greater than the supply. The same thing will happen with oil.
The leading tanker firms say we are facing the worst energy crisis since 1979.
Dr. Sal looks at what is going on in the top ten tanker companies. The tanker market is really poised, especially with the Russia-Ukraine war, for chaos and a serious supply problem.
Hauling from Russia and the Baltic is a short haul. There will be a large increase in miles to haul from the Middle East and South America, places like Iran and Venezuela. Also, there aren’t enough tankers. The newest tankers are 12 years old. Tankers aren’t being built.
In the clip below, Dr. Sal explains the increased costs of hauling crude as a result. Europe also has to figure out how to get 1.5 million barrels daily. They plan to put in the cap almost immediately and have no plan. They haven’t said what the cap would be and don’t have a way to fill the need for 1.5 million barrels a day. Tankers can’t handle it. Russia also has to make up for the shortfall.
Russia is looking to buy tankers and develop a shadow tanker fleet. They won’t be able to buy enough of them.
The top ten shipping companies in the world expose the fact that the tanker market has bottomed out since 2015. There are a lot of indications that it will get a lot worse than any time before. The tanker market loses Russian oil, and non-sanctioned oil will have to be moved over longer distances with fewer tankers and none scheduled to be built. Russia is buying the excess for their ghost fleet.
The shock to the system has already been enormous. We will now see the repercussions travel across the board. We are facing the worst energy crisis since 1979.