Chaos Expected in The Oil Market

On December 5, the Group of Seven introduced a price ceiling for Russian oil of $60. This came in addition to the EU’s ban on imports of Russian crude oil and corresponding bans by other G-7 partners, writes CNBC.

The EU’s new oil sanctions against Russia should be more challenging and harmful than previous sanctions.

The European Union has a ban on the purchase, import, or transfer of crude oil and oil derivatives from Russia. This was part of the EU’s sixth set of sanctions against Russia, which was adopted in June last year.

Restrictions on Russian crude oil came into force on December 5, while measures targeting Moscow’s refined petroleum products will apply from February 5.

Analysts at political risk consultancy Eurasia Group warned that the current EU ban “is likely to have a more devastating effect than previous EU sanctions on crude oil imports.”

Concerns about further supply disruptions come amid talk of further curbing oil prices. The EU and its G-7 allies are reportedly considering a price cap of $100 per barrel for premium Russian oil products such as diesel and a $45 cap for value products like fuel oil and industrial lubricants.

Figures might change

The Bloomberg report said that the thresholds would happen on February 5, but it’s possible that the numbers will change during negotiations with the EU’s allies.

A spokesperson for the European Commission, the EU’s executive arm, said talks between member states were ongoing but declined to give any further details.

It is said that the team at the EIU foresees some rerouting of flows, with Moscow sending more barrels to India, China, the Middle East, and Africa, and Europe stepping up imports from India, China, the Middle East, and the US. This would likely increase transportation costs.

Energy analysts were skeptical about the impact of the G-7 price ceiling on Russian oil, particularly as Moscow managed to divert much of its European maritime supplies to China, India, and Turkey.

The EU has called on India and China to support a cap on Russian oil prices. Despite this, India’s oil imports are reported to have jumped to a five-month high in December as the country actively increased its purchases of Russian crude. China was seen as the second largest buyer of Urals oil in January.