Traders have been keenly focused on just how much the war will affect output from Russia, one of the biggest producers.
“This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined,” European Commission President Ursula von der Leyen said. “We will make sure that we phase out Russian oil in an orderly fashion, in a way that allows us and our partners to secure alternative supply routes and minimizes the impact on global markets.”
Europe is highly dependent on Russian crude, and some countries will find it easier to switch supply than others. Russia shipped about 720,000 barrels a day of crude to European refineries through its main pipeline to the region last year. That compares with seaborne volumes of 1.57 million barrels a day from its Baltic, Black Sea and Arctic ports.
“It is an important stage on the route to zero Russian oil in the European Union,” said Paul Horsnell, head of commodities research at Standard Chartered. “While self-sanctioning has already cut the flow dramatically, it is important to have the line drawn under it officially.”
Hungary and Slovakia, which had been opposed to a swift cutoff of Russian oil and are highly reliant on its supply, will be granted a longer time frame — until the end of 2023 — to enforce the sanctions, according to people with knowledge of the matter.
The phaseout of Russian oil in Europe will come at a time when the world is grappling with a refined-product crisis — potentially making it all the more costly for the region to wean itself off Russian fuels such as diesel. On Tuesday, the American Petroleum Institute reported a weekly drop of about 4.5 million barrels each in U.S. gasoline and distillate inventories, according to people familiar with the figures, the latest sign of tightness in fuel markets.
The U.S. diesel crack spread — a gauge of the profitability of turning crude into diesel — has surged this year as countries cut back on Russian fuel, depleting supplies.
Oil investors are also counting down to a meeting on Thursday of the Organization of Petroleum Exporting Countries and its allies on production policy. The 23-nation group is expected to ratify another modest supply increase amid signs that the alliance is failing to deliver agreed-upon volumes.