Commodities Corner: What analysts think of the $60 price cap on Russia oil

by | Dec 2, 2022 | Stock Market

The Group of Seven nations and Australia, along with the European Union, on Friday set a cap on Russian seaborne oil at $60 a barrel, but analysts already have begun to question its effectiveness. The price cap will have “relatively little impact,” given that $60 is close to what Russia receives from China and India, said James Williams, energy economist at WTRG Economics.

Read The Wall Street Journal: EU Backs Russian Oil Price Cap of $60 a Barrel Global benchmark Brent crude saw its front-month February contract

settled Friday at $85.57 on ICE Futures Europe. Russian Urals type oil, however, currently trades at a discount of $24 a barrel to Brent, according to Pavel Molchanov, an analyst at Raymond James. The EU reached an agreement on the $60 price cap Friday, and the G7 and Australia then agreed to adopt the cap. Before the Russia-Ukraine war, the discount was only $1 to $2 a barrel, but it peaked at $35 this past summer, Molchanov told MarketWatch. That shows that in “wartime conditions, Russian producers are able to export [oil] only by offering cut-rate pricing to buyers,” he said. The current discount between Russian Urals and Brent reflects a combination of legal and sanctions “headaches,” reputational risk of doing business in Russian, and it also means that the price cap is “equivalent to Brent in the mid-$80s” — on par with current spot pricing, says Molchanov. Ursula von der Leyen, president of the European Union Commission, said in a video tweeted on Friday that the cap aims to strengthen the effect of EU sanctions, further diminish Russia’s revenues, and stabilize global energy markets because it “allows some Russian seaborne oil to be traded, brokered, transported by EU operators to third cou …

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