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Analysts say G-7 could limit Russian oil price, but it won’t erode Moscow’s war chest

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

Joe Klammer | AFP | Getty Images

The Group of 7 countries is in talks to limit Russian oil to $65 and $70 a barrel, but analysts say it won’t significantly affect 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 discount levels are certainly in line with the discounts already in the market… It is something that, as it is said, does not seem like it is will have an effect [on Moscow] It doesn’t matter if the price is that high.”

Russia has threatened not to supply oil to countries that have and support price caps.

“As 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 the Commonwealth Bank of Australia. “

In a note on Thursday, he said current Russian oil shipments are experiencing minimal disruption from the EU’s refusal to provide shipping and insurance services.

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

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

He even said that the price range discussed was higher than what the market expected.

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“Oil prices fell overnight after the EU discussed a price cap for 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 about the EU’s proposed cap on natural gas prices. Several EU member states disagreed on the effectiveness of a cap of €275 per megawatt hour, with some saying it was unrealistic to keep gas prices high for so long.

The bloc is trying to avoid skyrocketing gas prices as consumers already grapple with rising costs.

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

I think so [the G-7] would err on the side of caution by setting it higher rather than lower to prevent the inflation spiral from worsening.

Pavel Molchanov

Energy Analyst at Raymond James

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

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

“I think so [the G-7] exercise caution – set higher rather than lower to avoid exacerbating the inflation spiral.”

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

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Downside risks to current forecasts

If EU members agree to the proposed cap, Dhar expects oil prices to fall below $95 a barrel in the last quarter of 2022.

Oil prices were partly higher on Friday afternoon Asia time. Brent crude oil futures rose 0.35% to $85.64 a barrel, while US West Texas Intermediate futures rose 0.55% to $78.37 a barrel.

“Our price forecast assumes that EU sanctions with price caps on Russian oil will result in enough supply disruption to offset global growth concerns.”

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

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

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