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G7 price cap on Russian oil won’t have strong impact on Moscow: analyst

Photo taken on May 3, 2022 shows a general view of Slovakia’s biggest mineral oil refinery Slovaft in Bratislava, Slovakia. (Photo by Joe Klamar / AFP)

Joe Clammer | AFP | Getty Images

The Group of 7 countries are in talks to cap Russian oil at $65 and $70 a barrel – but analysts say it would not have a significant impact on Moscow’s oil revenues even if approved.

Wood Mackenzie’s vice president of gas and LNG research Massimo D’Odoardo said prices at those levels are close to what Asian markets are currently paying to Russia, albeit at a “significant discount”.

“Those levels of discount are certainly in line with the discount already in the market … It’s something that doesn’t seem, as it’s put, like it’s going to have an effect [on Moscow] Whatever if the price is that high.”

Russia has threatened no oil supply For countries setting and supporting price caps.

“Given that Russian oil (Ural) is trading at $60-65/bbl, the proposed price range is already in line with current market conditions,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “

In a note on Thursday, he said current Russian oil shipments face minimal disruption from the EU’s denial of shipping and insurance services.

He agreed that the price range discussed would not deter or deter Moscow much in its war against Ukraine.

“Russia’s marine oil exports to China, India and Turkey have increased at the expense of advanced economies after the Ukraine war,” he said.

In fact, he said the price range discussed was higher than what the market was expecting.

“Oil prices edged lower overnight after the EU discussed a price cap on Russian oil between $65-70/bbl, a price range higher than the market expected and levels that could lead to disruption of EU sanctions on Russian oil shipments. will reduce the risk,” Dhar said.

There was similar skepticism over the EU’s proposed cap on natural gas prices. Several EU member states locked horns over the effectiveness of capping at 275 euros per megawatt hour, with some saying it was not realistic to keep gas prices that high for so long.

The bloc is trying to prevent skyrocketing gas prices as consumers are already grappling with rising costs.

G-7 policymakers have a tough balancing act to do.

I think so [the G-7] would err on the side of caution – setting it higher rather than lower to avoid worsening the inflationary spiral.

pavel molchanov

Energy Analyst at Raymond James

If prices are set too high, they will be meaningless and the risk will have no effect on Russia – but if the price cap is set too low, it could lead to a material reduction in the supply of Russian oil to the global market, Raymond James Told. Energy analyst Pavel Molchanov.

“A lower price ceiling means more inflation, more consumer unhappiness and more monetary tightening,” Molchanov said.

“I think so [the G-7] would err on the side of caution – setting it higher rather than lower to avoid worsening the inflationary spiral.”

Last week, official data showed UK inflation rose to a 41-year high of 11.1% in October, higher than expected, as energy prices, among other factors, continued to squeeze households and businesses. kept.

Downside risk to current forecasts

Read more about energy from CNBC Pro

The European bloc has imposed several rounds of sanctions against Russia since Moscow launched its protracted war on neighboring Ukraine in late February.

Earlier this week, Goldman Sachs cut its oil price forecast by $10 to $100 a barrel for the fourth quarter of 2022. Citing rising Covid concerns in China and a lack of clarity on the Group of Seven’s plan to cap Russian oil prices.

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