Price Cap Response in Moscow's Hands

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.

The Kremlin will dictate how Russian oil companies deal with the G7's price cap on Russian oil exports. Political factors will outweigh everything else, even if there is an economic case for Russian producers to sell their oil under the parameters of the cap. It is important not to give in to pressure from the West, since concessions could encourage more Western sanctions and restrictions in the future, Russian market players believe. Details of the cap have been slow to emerge, but the idea is to set Russian export prices below market levels to restrict Moscow's income but above its production costs to keep Russian oil flowing — and hopefully avoid a global price spike. Traders see flaws in the system though and say it will be easy to evade and difficult to enforce. Yevgeny Tolochek, CEO of midsized Russian independent producer Russneft, does not rule out that the cap could work in favor of Russian exporters — if it is set at an acceptable level and if the ruble/dollar exchange rate improves. In what could be an indicator of an acceptable level, Russneft's 2023 budget is based on a $69/bbl Urals price, while benchmark Brent crude now trades near $90/bbl. Tolochek said Russneft would like to see an exchange rate of 80 rubles to one US dollar, compared to 58 rubles now. But he emphasized that Moscow would have the final say on how firms proceed.

Sanctions, Oil Supply, Ukraine Crisis
Wanda Ad #2 (article footer)
The biggest direct action against Russian oil supplies ever taken by the West is just days away, but many questions remain about the price cap.
Thu, Dec 1, 2022
Opec-plus on Sunday kept its oil production policy unchanged, in line with market expectations.
Sun, Dec 4, 2022
Shipping and insurance firms will have to cooperate with G7 authorities for the price cap on Russian oil to work, but sources are skeptical about the rules.
Fri, Dec 2, 2022