Oil prices rise as cap on Russian crude emerges - Dispatch Weekly

On Monday morning, Brent crude increased by roughly 0.6% to surpass $86 per barrel.

In order to put more pressure on Russia over the invasion of Ukraine, the G7 decided to cap the price of Russian oil at $60 per barrel on Friday.

Opec+, which represents oil producers, announced over the weekend that it would continue to follow its strategy of cutting output.

Russia is one of the 23 oil-exporting nations that make up Opec+. Opec+ meets frequently to decide how much crude oil should be sold on the international market.

“This decision by Opec+ to keep the quota where it is… is by itself an implicit sort of support to the oil market,” said Kang Wu of S&P Global Commodity Insights.

Oil prices, according to analysts, have also been raised by the relaxation of Covid limits in some Chinese cities, which may increase demand for oil.

Following widespread protests over the nation’s zero-Covid policy, other Chinese cities, like Urumqi in the north-west, have announced they will slacken regulations.

Cost ceiling

The G7 and Australia said last week that the $60 ceiling on Russian oil would take effect on Monday or “very shortly thereafter.”

According to them, the goal of the action was to “prevent Russia from benefitting from its campaign of aggression against Ukraine.”

Only Russian oil purchased for less than $60 per barrel will be permitted to be exported using G7 and EU tankers, insurance firms, and financial institutions under the price cap.

The fact that many significant shipping and insurance companies have their headquarters within the G7 could make it challenging for Moscow to sell its oil at a higher price.

Russia has declared that it will reject the price cap and warned it could stop supplying oil to nations that agree to it.

Oil prices may rise as a result, said Jorge Leon, senior vice-president at the Norwegian energy consultancy Rystad Energy.

He claimed that Russia had made it quite clear that it would not sell crude (oil) to anyone who agreed to the price cap.

Therefore, it is likely that there will be some disruptions in the upcoming months, which will likely result in an increase in oil prices in the ensuing weeks.

The G7 is a grouping of the seven biggest so-called “advanced” economies in the world, which control trade and the global financial system.

Supply worries

On worries that the supply may be harmed by Russia’s invasion of Ukraine, oil and gas prices have skyrocketed.

Russia, which supplies almost a third of Europe’s needs with crude oil, is the world’s second-largest producer behind Saudi Arabia.

The price limitation, according to US Treasury Secretary Janet Yellen, would prevent supply disruptions while further limiting Russian President Vladimir Putin’s financial resources and “limiting the income he’s using to pay his horrific invasion.”

Volodymyr Zelensky, the president of Ukraine, referred to the cap as “a weak posture” that was not “serious” enough to harm the Russian economy.

On Monday, a maritime import embargo on Russian crude oil will go into effect throughout the EU.

Russia will undoubtedly feel the effects of the sanctions, but the blow will be somewhat lessened by its decision to sell its oil to other markets, like India and China, which are now the world’s two biggest consumers.