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EU Oil Price Cap Talks Go Down to the Wire

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European Union member states are struggling to agree the appropriate level of the planned G7 price cap for Russian oil, which is set to take effect on Dec. 5.

Poland, Lithuania and Estonia argue that a previously proposed cap of $65-$70 per barrel for Russian crude oil is too high, but Greece, Cyprus and Malta are holding out for a relatively high cap or some form of compensation for their shipping industries.

"In principle, Poland supports the price cap on Russian oil, but the proposed level is extremely high," a Polish official told Energy Intelligence.

Poland says the price cap should be based on Russia's production costs "and not the current market price."

An official from the Greek-led group suggested that talks would likely continue this week, adding that the Polish position was the main obstacle to an agreement.

An EU diplomat said Poland and Estonia had both initially demanded a price level of around $30/bbl as ambassadors resumed talks in Brussels late on Monday.

US Keeps Its Distance

The EU diplomat said that while the US had played an important role in developing the G7 price cap proposal, it now appeared to be keeping its distance .

"I had expected to see the US more involved in a last minute push to get things over the line, but we are yet to see it," he said.

"A landing zone [for the price cap] is still hard to read," he said, while adding that he was not directly involved in the talks between the countries who have been holding up an agreement.

The EU has banned imports of Russian crude oil from Dec. 5 and imports of refined oil products from Feb. 5. It has also banned maritime transport of Russian oil to third countries, as well as related insurance and other crucial services for seaborne cargoes.

However, under a mechanism agreed with the US, the UK and the other G7 countries, those countries will allow Russian oil to be shipped to third countries on the condition that it is purchased at or below the price cap.

The mechanism is intended to limit Russia's oil revenues as it continues its war in Ukraine, but ensure that Russia continues to supply oil to the global market.

Willing Buyers

Benchmark Brent crude has recently been trading in the low to mid $80s per barrel, while Russia's Urals grade has been trading in the low to mid $60s.

Soon after Russia invaded Ukraine in late February, some of Russia's traditional European customers started to shun Urals, which prompted Russian producers to offer deep discounts to willing buyers such as India, China and Turkey.

Ukrainian President Volodymyr Zelenskiy has also recently indicated that a crude oil price cap in the $60/bbl range would be too lenient on Russia and that a cap of $30-$40/bbl was needed to punish it for invading his country.

The EU is discussing the price cap scheme as part of a ninth round of sanctions that European Commission President Ursula Von der Leyen previewed last week.

Without providing further details of the other planned sanctions, Von der Leyen said she was "confident that we will very soon approve a global price cap on Russian oil with the G7 and other major partners."

Kremlin spokesman Dmitry Peskov, speaking on Sunday, repeated that Russia will not do business with any countries that participate in the price cap scheme, but he also said the issue involved considering "a lot of nuances".

At the end of the day "nobody in our country is going to shoot itself in the foot” he told Russian TV channel "Rossiya 1."

Topics:
Sanctions, Oil Prices, Oil Supply, Crude Oil
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