scorecardresearchG7 coalition has agreed to set fixed price for Russian oil: Report

G7 coalition has agreed to set fixed price for Russian oil: Report

Updated: 04 Nov 2022, 10:35 AM IST
TL;DR.

On September 02, the G7 nations agreed to implement a price cap on oil imports from Russia in a bid to cut off a major source of funding for Moscow's military action in Ukraine.

U.S. Treasury Secretary Janet Yellen and other G7 officials argue the price cap, set to begin in December. 5 on crude and Feb. 5 on oil products, which will squeeze funding to Russia without cutting supply to consumers.

U.S. Treasury Secretary Janet Yellen and other G7 officials argue the price cap, set to begin in December. 5 on crude and Feb. 5 on oil products, which will squeeze funding to Russia without cutting supply to consumers.

The Group of Seven rich nations and Australia have agreed to set a fixed price when they finalize a price cap on Russian oil later this month, rather than adopting a floating rate, Reuters reported, quoting sources.

U.S. officials and G7 countries have been in intense negotiations in recent weeks over the unprecedented plan to put a price cap on sea-borne oil shipments, which is scheduled to take effect on Dec. 5, to ensure EU and U.S. sanctions aimed at limiting Moscow's ability to fund its invasion of Ukraine do not throttle the global oil market, the report said.

"The Coalition has agreed the price cap will be a fixed price that will be reviewed regularly rather than a discount to an index," said a coalition source, who was not authorized to speak publicly. "This will increase market stability and simplify compliance to minimize the burden on market participants."

The initial price itself has not been set, but should be in the coming weeks, multiple sources said. The coalition partners agreed to regularly review the fixed price and revise it as needed, the source said without disclosing further details.

Pegging the price as a discount to some index would have resulted in too much volatility and potential price swings, the source added.

The coalition worried that a floating price pegged below the Brent international benchmark might enable Russian President Vladimir Putin to game the mechanism by reducing supply, a second source with knowledge of the discussions said.

Putin could benefit from a floating price system because the price for his country's oil would also rise if Brent spiked due to a cut in oil from Russia, one of the world's largest petroleum producers. The downside of the agreed fixed price system is that it will require more meetings of the coalition and bureaucracy to review it regularly, the source said.

U.S. Treasury Secretary Janet Yellen and other G7 officials argue the price cap, set to begin in December. 5 on crude and Feb. 5 on oil products, which will squeeze funding to Russia without cutting supply to consumers. Russia has said it will refuse to ship oil to countries that set price caps.

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First Published: 04 Nov 2022, 10:35 AM IST