With Russia regrouping for a fresh offensive in eastern Ukraine, China is preparing to receive the first commodity shipments from Moscow paid for in yuan since several Russian banks were cut off from the international financial system. 

Russian crude that would normally end up in refineries in Europe or the U.S. is heading for Asia, where buyers, particularly in India, are taking advantage of steep discounts. Shipments from the Black Sea and Russia’s Baltic Sea ports of Primorsk and Ust-Luga started heading to India in March, following earlier cargoes from the same terminals to China.

EU foreign ministers are likely to discuss imposing an oil embargo on Russia when they meet next week, said Josep Borrell, the bloc’s foreign policy chief. Speaking in Brussels on Thursday, Borrell said that a ban on oil is not in the latest sanctions package, though he expects ministers will tackle it on Monday, “and sooner or later -- I hope sooner -- it will happen.”

Russia’s natural gas supplies, which like oil have yet to be sanctioned by the EU, continue to flow freely as Europe faces an energy cost crunch that’s prompting governments to think twice before taking any action that might see prices rise further. 

Italy, one of the biggest buyers of Russian gas, said Wednesday that it would support a ban if the bloc was united behind the idea, a move that Germany among others has so far opposed.

Eoin Treacy's view

The Russian regime calculated correctly that it would be impossible for Europe to avoid importing its oil and gas for the next few years. They may also have bet that the jump in prices for its exports would come close to compensating for the decline in exports to the OECD. Revelations of war crimes are hard to watch but that doesn’t change the fact Europe is not yet in a position to cut itself off from Russian imports.

The net effect is the supply deficit of oil is a local rather than global affair. Releases from strategic reserves in several countries are having an outsized effect for that reason. As highlighted on the March 24th the contraction in the backwardation between the 1st and 2nd month contracts was signaling a near-term peak. That difference is down to 58 cents from over $4.50 at the beginning of March.  

The release from reserves will ease the inventory shortage in the short term but more drilling will have to take place if lower prices are to be sustained.

Brent crude is back testing the $100 area. This area represents a potential point of support with global growth due to slow as interest rates rise, the near-term prognosis is for lower to lateral ranging. That also supports the view inflation is peaking.