(Reuters) – The extraordinary events in Russia this weekend made for dramatic headlines and the ramifications are likely far from over, but the immediate impact on global crude oil markets is likely to be limited.
The upshot of the events over the past few days is that Russian President Vladimir Putin has survived a threat to his rule from the mercenary group Wagner, but his grip on power and his image as a strongman have been damaged.
A deal mediated by Belarusian President Alexander Lukashenko, a key Putin ally, will see Wagner boss Yevgeny Prigozhin move to Belarus and his Wagner fighters end their mutiny in exchange for the dropping of charges against them.
There is still a large degree of uncertainty as to just how damaged Putin is in the wake of what appears to be the most serious challenge to his 24 years in power.
What is somewhat more certain is that there is no direct threat to Russia’s crude oil industry and no reason to believe that shipments from the world’s second-largest exporter of the fuel are in any danger.
That relief was apparent in early Asian trade on Monday in global benchmark Brent futures , which rose as much as 1.3% from the close on June 23 to $74.80 a barrel. It had moved back to $74.55 by midmorning Sydney time, up just 70 cents from the prior close.
The gain in early Monday trade was relatively modest, especially when viewed against other unexpected developments in the crude market.
An example was the surprise additional output cuts announced by the OPEC+ group in early April, which saw the contract jump as much as 8.4% the next trading day.
While there appears little imminent threat to Russia’s exports of crude oil and refined products, the weekend unrest does raise concerns over the medium and longer terms.
UNCERTAINTY RISKS
The first is whether Putin clings onto power, or whether his downfall is now inevitable, and if so, how will the end of his rule come about and what sort of regime will replace him?
These are questions still steeped in uncertainty, but as far as the oil industry is concerned there is a little more certainty, as it would not be in the interests of any potential new government in Moscow to damage the country’s top income earning export.
Short of destructive civil war, it would seem likely that maintaining oil and fuel exports would be a top priority, for both Putin should he weather the current crisis, and for whoever may succeed him.
There are also questions as to how Russia will now fit into the wider OPEC+ group.
OPEC+ has largely functioned because of the seemingly close working relationship between its two leading members, Saudi Arabia and Russia.
The Saudis are likely to adopt a wait-and-see attitude to developments in Russia, but if there is a return to some form of political stability, it’s likely that OPEC+ will continue in its current format.
Whether the group is able to keep oil prices high enough to meet its needs is another question, and one that is likely to be answered by developments outside of Russia, such as the slowing global economy and the questionable strength of China’s economic rebound.
Russia’s crude oil exports are expected to dip in June, but this is largely the impact of Moscow’s earlier announcement of a voluntary 500,000 barrels per day (bpd) additional cut to output.
Russia’s seaborne exports are estimated by Refinitiv Oil Research at 4.32 million bpd in June, down from 5.07 million bpd in May. The June figure may be revised higher as more cargoes may be assessed prior to the end of the month.
The biggest risk of the brief mutiny in Russia is that it raises the level of uncertainty in a country that remains a key player in the oil market.
Uncertainty generally demands a risk premium in the oil price, and it would seem that so far that premium is small, reflecting the lack of any direct threat to crude exports in the short term.
But a wounded and weakened Putin is one more thing the global oil market now has to worry about.
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