Q4 2022: Supply policy and sanctions collided

I. Market Summary

In the final quarter of 2022, supply policy and sanctions collided. OPEC+ stunned markets on 5 October with a nominal 2 mb/d cut, and on 5 December the EU‑G7 $60 / bbl price cap plus an embargo on seaborne Russian crude came into force. LNG arrivals cushioned Europe, but the cocktail kept Brent oscillating in a wide US $76–98 band.  

II. OPEC+ turns the screws

The Vienna decision reduced official production targets by 2 mb/d (about 1 mb/d of real barrels, given prior under‑production). The White House branded the move “short‑sighted,” while Riyadh cited downside risks to demand

III. Sanctions step‑change

• EU embargo & price cap (5 Dec). The ban on Russian seaborne crude coincided with a $60 cap, enforced via Western shipping and insurance services. CRECAEuropean Commission

• Refined‑product phase‑in was scheduled for 5 February 2023. Markets braced for a reshuffle of trade flows toward Asia, Africa and Latin America.

IV. LNG fills the gap

European LNG imports surged 66 % y/y to a record 132 bcm in 2022, enabled by a 31 % jump in regas capacity. Mild weather and disciplined demand‑side measures pushed EU storage to 95 % full by 1 November, averting rationing fears.

V. Price & margin landscape

Middle‑distillate cracks widened to a record >US $60 / bbl in northwest Europe as refineries ran flat‑out ahead of the product ban. Freight rates for Aframax tankers carrying Russian crude to India and China tripled as the “shadow fleet” tightened Atlantic basin capacity.

V. Take‑aways for operators

Term‑lifting contracts tied to dated Brent are less useful when sanctions create multi‑tiered market pricing; flexible differential clauses are essential.

LNG regas investments delivered strategic value within ten months—lead‑time matters.