Analysts predict that even if the Group of Seven agrees to a price limit of $65 or $70 a barrel for Russian oil, it won’t significantly affect Moscow’s oil revenues.
According to Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, prices at those levels are comparable to those that Asian markets are paying Russia at the present time, which amounts to a “big discount.”
“Those levels of discounts are certainly in line with what the discounts are already in the market.” Given the price, “it’s something that doesn’t seem to have any effect [on Moscow] whatsoever as it is placed.” Russia has threatened not to supply oil to nations that set and support price caps.
According to Vivek Dhar, Director of Mining and Energy Commodities research at Commonwealth Bank of Australia, “Given that Russian oil (Urals) is trading at $60-65/bbl, the proposed price cap is already compliant under the prevailing market conditions.”
He stated in a note on Thursday that the European Union’s denial of shipping and insurance services will not significantly affect the current Russian oil shipments.
He agreed that Moscow’s war against Ukraine will continue unabated despite the discussed price cap.
He added, “following the war in Ukraine, Russia’s seaborne oil exports have increased to China, India, and Turkey at the expense of advanced economies.”
In fact, he said that the price cap that was discussed was higher than what the markets were expecting.
Dhar stated, “Oil prices finished lower overnight after the EU discussed a price cap on Russian oil between $US65 and $US70/bbl, a price range that was higher than markets expected and at levels that will reduce the risk of disruptions caused by EU sanctions on Russian oil shipments.” This price range was between $US65 and $US70/bbl.
Similar reservations were expressed regarding the EU’s proposed cap on natural gas prices.Several EU member states disagreed about whether the price cap of 275 euros per megawatt hour was effective; some states argued that it was unrealistic to maintain gas prices at such high levels for such a long time.
The coalition is trying to prevent gas costs from taking off out of this world as customers are now battling with increasing cost for many everyday items.
Policymakers from the G-7 face a difficult balancing act. I think that the G-7 will be cautious and set it high rather than low to prevent the inflationary spiral from getting worse.
According to energy analyst Pavel Molchanov of Raymond James, prices that are set too high will be meaningless and risk having no effect on Russia. On the other hand, prices that are set too low could result in a physical reduction in the supply of Russian oil to the global market.
Molchanov noted that a lower price cap would “mean more inflation, more consumer unhappiness, and more monetary tightening.”
“It seems to me that [the G-7] will err on the side of caution, setting it high rather than low to prevent the inflationary spiral from getting worse,”
Official data from the United Kingdom showed that in October, inflation rose to a 41-year high of 11.1%, which was higher than anticipated due to the continued squeeze on households and businesses caused by energy costs and other factors.
Dhar anticipates that the price of oil will fall below $95 per barrel in the final quarter of 2022 if EU members agree to the proposed cap.
Friday afternoon, Asia time, oil prices were slightly higher.U.S. West Texas Intermediate futures rose 0.55 percent to $78.37 per barrel, while Brent crude futures increased by 0.35 percent to $85.64 per barrel.
“Our price forecast is based on the assumption that EU sanctions and a price cap on Russian oil will cause enough supply disruption to offset ongoing concerns about global growth.”Since Moscow began its unprovoked war on Ukraine at the end of February, the European Union has imposed multiple rounds of sanctions on the country.
Goldman Sachs lowered its fourth-quarter 2022 oil price forecast by $10 to $100 per barrel earlier this week due to growing concerns about Covid in China and uncertainty regarding the Group of Seven’s plan to limit Russian oil prices.
