Bloomberg reported on the maintenance of the maximum price level for Russian oil, citing informed sources from the European Commission (EC). Earlier, US President Joe Biden, during a meeting with the President of the European Commission, Ursula von der Leyen, also confirmed Washington’s intention to maintain maximum price parameters.
At the same time, in early March, many EU countries were in favor of lowering the maximum export price for Russian oil to $55 per barrel. But by the end of the month, supporters of this idea had dwindled. In fact, only the Baltic countries and Poland were in favor of this.
According to Alfa Capital’s portfolio manager, Dmitry Skryabin, the decision not to revise the maximum price may be due to Russia extending its oil production cut by 0.5 million barrels per day from March to the end of June, which increases the risk of shortages. oil in the market, and contributes to the growth of prices.
The decision of the EU and the G7 turned out to be quite predictable. Lowering the ceiling on oil prices is like sawing off the branch on which the European economy rests, says Valery Andrianov, associate professor at the Financial University of the Government of the Russian Federation, an expert at the InfoTEK think tank. In fact, the ceiling mechanism was launched to create a gray market for Russian oil. That is, in words, Europe imposes an embargo on the purchase of Russian raw materials and closes the “front door” for you, but in reality it opens a “back door” for you, which you can enter if you wish.
Andrianov quotes the words of Patrick Pouyanne, CEO of the French company TotalEnergies, who said: “With all these bans, we are creating a gray oil market.”
If the size of the ceiling is acceptable, foreign traders themselves will begin to circumvent the EU bans. If the ceiling is too low and does not contain the margin of shadow intermediaries, then it can become a real barrier to the supply of Russian oil to Europe. This is confirmed by the fact that even the fall in oil prices that began in mid-March due to fears of a US recession did not affect the size of the ceiling. Fears of finally losing Russian oil are apparently growing, the expert believes.
At the same time, as Skryabin notes, you can return to the topic of regularly changing the roof, so you do not need to overestimate this decision yet. If the situation on the market changes, in April, the EU and the G7 countries can start negotiations on this issue again.
For Russia, keeping the ceiling level is a positive sign. The discount for our Ural oil relative to our benchmark Brent is narrowing after peaking in January, when it hit $35 a barrel. According to the Europeans themselves, now the discount fluctuates around 20-25 dollars per barrel and is gradually decreasing. Lowering the ceiling level could increase the discount again at this time.
Skryabin believes that keeping the cap may help reduce the discount for Russian oil grades on the world market.
According to Andrianov, the status quo is now preserved. But it is possible that as logistics schemes develop and Russian oil supplies to Asia and other countries increase further, the question will no longer be to maintain the previous size of the ceiling, but even to grow it. Otherwise, it will become increasingly difficult to attract Russian raw materials to the informal market. In fact, this measure already looks like a complete desecration, and gradually it will completely lose its meaning, the expert believes.
