A $65-$70 Price Cap On Russian Oil May Be Too High To Hurt Moscow

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The planned price cap of $65-$70 per barrel for Russia’s oil is not expected to immediately shrink Putin’s oil revenues, considering that this is more or less the price that buyers currently pay for Russian crude, multiple industry sources familiar with the transaction prices told Reuters.

The primary goal of the price cap is to reduce the oil income available to the Kremlin that funds its war in Ukraine. The other key objective of the price cap is to keep Russian oil flowing by restricting maritime transportation services when the crude is being bought above a certain price cap.

No final decision has been taken by the G7 and the EU yet, but the price cap mechanism and the EU embargo on imports of Russian crude by sea are set to enter into force in less than two weeks, on December 5. 

Reports emerged on Wednesday that the EU is discussing capping the price of Russian oil at somewhere between $65 and $70 per barrel. Such a cap, if approved, would not effectively lower the price of the flagship Russian crude currently being traded on the market.

According to two of Reuters’ sources, some Indian refiners have been paying a discount of $25-$35 for Russia’s Urals compared to Brent, which – as it stands – is currently lower than the proposed price cap of $65-$70, since Brent trades at around $85 per barrel these days.

The EU ambassadors of the 27-member bloc were discussing the G7 proposal of a cap but failed to reach a decision on Wednesday as EU countries are split over whether a price cap of $65-$70 is too high or too low. 

Talks are expected to continue on Thursday or Friday, but there are differences among member states, EU diplomats told Reuters today. One group of EU countries, including Russian neighbors Poland, Lithuania, and Estonia, believe the proposed price cap is too high and will still give Russia a handsome revenue from oil.

Another group of mostly southern EU members with large shipping industries – Greece, Malta, and Cyprus – have said a $65-$70 cap is too low and demand compensation for the potential loss of Russian oil trade to their shipping, according to EU diplomats who spoke to Reuters.

By Tsvetana Paraskova for Oilprice.com

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