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Here’s how Russia’s oil price cap could flop – benefiting China and India instead

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  • Price caps on Russian crude go into effect December 5, with the aim of limiting Moscow’s earnings while keeping inventories up.
  • But it could have minimal impact on its intended target, helping China and India instead.
  • Oil historian Gregory Brew and Energy Aspects analyst Livia Gallarti explain what this means for global crude oil markets.

Experts say the price cap on Russian crude oil could only have a dampened effect on Moscow, benefiting China and India, the two largest buyers, instead.

The price cap will come into effect on December 5 – the same day the EU bans the import of Russian crude oil by sea and European companies are not allowed to insure Russian oil shipments. It aims to keep Russian supplies on the market to avoid price hikes while reducing export earnings amid the war over Ukraine.

But China, India and other buyers in Asia won’t feel obligated to stick to the price cap, oil historian Gregory Brew told Insider, because it can’t be less than what they’re currently paying. Russian Urals crude is already selling for about $25 below the Brent price, or about $60 a barrel.

The price cap is expected to be around $65 to $70 per barrel. Brau explained that there had been some talks to bring it closer to the price of Russian crude – about $20 a barrel – but he lost support, as Moscow would likely unilaterally cut production, driving up prices. Will be

“What does this represent [Russia’s customers] able to negotiate very favorable terms from Russian oil companies that need to sell to keep their business,” he said. That India, China and other customers can bid lower on Russian crude.”

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Some buyers in Asia have recently put off buying Russian oil and are waiting to see where the limit comes from.

a policy that is useless to the West

According to Livia Gallarti, a senior oil analyst at Energy Aspects, a price cap could be moot because Moscow has said for months it will not trade with a country that adheres to it. This can make it risky for Chinese and Indian customers to agree to the new parameters.

“We think the Russians will keep their word because in a way, agreeing on a price cap actually sets a precedent for buyers at what price they will buy the commodity,” Galarati told Insider.

The only incentive for Asian buyers to meet the limit is to maintain access to European shipping and insurance services. Next month’s round of EU sanctions against Russian oil shipments will see those services banned, even for buyers outside Europe, unless they commit to price caps.

But there is no guarantee that even European shipping companies will want to deal with Russian oil, regardless of the price cap.

Ultimately, in his view, the move is unlikely to have a major impact on oil markets. Countries that have signed the limit have already agreed to ban imports of Russian oil, Galarati said.

“If [Russia] continue to sell at the level they are selling at today, then no country will have to officially sign the price cap, because they will get that exemption anyway,” he said.

Source: www.businessinsider.com

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