24 Nov 2022 8:08 am
The EU considers the price ceiling for Russian oil to be between US$65 and US$70 per barrel. Experts and diplomats have pointed out that the range is roughly in line with the current discounted fuel price. The impact on Moscow would be minimal.
Like the newspaper Bloomberg citing informed sources, the European Union is considering imposing a $65-$70 price cap on Russian oil.
Several EU diplomats criticized the newspaper for overestimating the figure as it reflects the long-term average price of a barrel of oil at the time before the start of the Russian military operation in Ukraine. Bloomberg points out that this price range is well above the cost of oil production in Russia and also above the level required by some European countries. Therefore, the high price threshold is likely to have little impact on the country, the newspaper wrote. Simone Tagliapietra, senior researcher at the Bruegel think tank, described:
“Russian oil is currently trading at a significant discount to Brent, which is trading at around $65 a barrel.”
Tagliapietra believes that an oil price cap of US$65-70 per barrel would not hurt Russia particularly badly.
The newspaper The Wall Street Journal had previously reported that a threshold of $60 to $70 per barrel was under discussion. As Bloomberg reported, the G7 countries had previously discussed the introduction of a significantly lower upper limit of around USD 40 per barrel. On November 22, Brent crude was trading at around $90 a barrel.
Interlocutors said opposite Bloomberg and the Wall Street Journalthat the exact value could be announced as early as November 23rd. An extraordinary meeting of EU energy ministers is taking place today, Wednesday. However, the price limit will only be introduced if all states support it.
The G7 countries (US, Canada, UK, France, Germany, Italy and Japan) announced in September their intention to introduce a corresponding cap on Russian oil. This measure is also included in the EU’s eighth package of sanctions, which was presented at the beginning of October. The price cap for crude oil is scheduled to come into effect on December 5 this year, for oil products on February 5, 2023. Also, on the same dates, an embargo on the supply of oil and oil products from Russia by sea will come into effect.
The Russian authorities have already announced that they will no longer supply oil to countries that agree to the price cap. According to Russian Deputy Prime Minister Alexander Novak, the discussion about the export price ceiling is an intervention in the market. He emphasized:
“We are willing to work with those consumers who are willing to engage with market conditions.”
According to the US Treasury Department, it will be difficult for Russia to maintain previous supply levels without agreeing to a price cap. Moscow will maintain economic incentives for fuel exports, the US State Department said. The US intends to limit Russia’s benefits from oil supplies by maintaining the presence of its products in the market.
Indian and Chinese oil importers are holding back on oil purchases pending clarity on how the “price cap” mechanism works, sources say Reuters and Bloomberg.
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