The proposed G7 oil price cap will have no immediate impact on Russian earnings


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Julia Payne and Nidhi Verma

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23 Nov. 2022 • 1 hour • 2 min Read Join the conversation

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LONDON/NEW DELHI/MOSCOW — A proposed price cap of $65-$70 per barrel for Russian oil by the Group of Seven (G7) nations will have no immediate impact on Moscow’s earnings as it will largely be paid for by Asian buyers . In accordance with current payments. Five industry sources with direct knowledge of the purchase said so on Wednesday.

The purpose of the price cap is to deny Russian President Vladimir Putin the revenue to fund a military invasion of Ukraine, without causing major disruptions to global oil markets that would drive up energy prices.

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Oil and gas exports are expected to account for 42% of Russia’s revenue this year at 11.7 trillion rubles ($196 billion), up 36%, or 9.1 trillion rubles ($152 billion), by 2021, according to the country’s Ministry of Finance.

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The G7, including the United States, as well as the entire European Union and Australia, plans to introduce price caps on Russian oil exports by sea on December 5.

After the start of the conflict in February, India has become the second largest buyer of Russian oil after China. Indian refiners have replaced refiners in countries that have banned Russian crude imports, or have distanced themselves from Russian crude to avoid negative publicity.

Two sources said some Indian refiners are paying the equivalent of a rebate of about $25 to $35 per barrel on international benchmark Brent crude for Russian Urals crude. Ural Russia’s main export product is crude oil.

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As Brent is trading around $85 a barrel on Wednesday, that means the price of Ural will be $50-$60 a barrel, well below the limit.

This would indicate that Western shippers and insurers living in countries that have imposed sanctions on Russia could fearlessly provide services to cover shipments of Russian crude oil.

It also means that Russia does not have to follow through on its threat to stop supplying buyers who adhere to the price cap – because the market is already below that cap anyway.

The U.S. Treasury Department’s guidelines released Tuesday said the limit is known as free on board (FOB) pricing, which does not include the cost of insurance and shipping. This would be the price at which crude oil would be sold if a buyer went to collect it from a Russian terminal.

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Indian refiners are generally paid for the crude oil delivered to them. That price includes insurance and freight.

A source said India also pays $15-20 per barrel less than Brent for Ural crude oil delivered. This means that the delivered cargo is also at the same level as the price cap.

Trade sources said Ural is trading ahead of dated Brent at a similar $30-$35 discount to other buyers. Oil produced by the recognized state oil company Rosneft is on the lower side and non-Rosneft is slightly higher.

U.S. Treasury Department guidelines do not allow buyers in countries that have imposed restrictions on Russian crude imports, such as the United States and the European Union, to buy Russian oil even below the price cap. ($1 = 59,8000 rubles) (reporting by Julia Payne in London and Nidhi Verma in New Delhi; editing by Elaine Hardcastle and Simon Webb)

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