Fresh Reports Highlight The Potential Price Cap For Russian Oil
- Oil markets are under pressure as the Russian oil price cap may be set in the $65 – $70 range.
- Traders remain nervous as there is no official confirmation of the price cap.
- Oil markets will stay volatile as traders wait for the news on the price cap scheme.
What Is The Potential Price Cap For Russian Oil?
Oil markets are waiting for the details of the Russian oil price cap plan. According to recent reports, G7 countries plan to set the price cap in the $65 – $70 range.
Yesterday, WSJ reported that the Russian oil price cap may be higher than previously expected, indicating a $60 – $70 range.
Today’s reports about a potential $65 – $70 range show that G7 countries are worried that a low price cap would push too much oil out of the market, leading to higher oil prices for everyone. Russia has previously stated that it would not supply oil to countries that impose a price cap.
Why Oil Markets Are Moving Lower?
G7 countries want to cut Russia’s access to transportation, financing, and insurance services if it does not comply with the price cap. In turn, Russia plans to bypass the scheme by using its own fleet and working with smaller, non-Western companies.
If the price cap is set at low levels, Russian oil exports would decline, as the country failed to find enough tankers for its oil. Insurance should not be a big problem as Russia can offer the services of a state-owned insurer, and become a de-facto insurer for the transportation of its own oil.
In case the price cap is set at $70 and the oil market stays near current levels, Russia may continue using Western services as its oil is currently selling at a significant discount to Brent oil. In this scenario, both sides will claim victory while continuing business as usual.
Not surprisingly, the oil markets suffered a sell-off after the new reports discussed a potential price cap in the $65 – $70 range. WTI oil settled below the $78 level, while Brent oil moved below $85.
Traders should keep in mind that oil markets will remain extremely sensitive to price cap news in the near term and that fast moves are possible.
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