Oil prices drop more than 3% as G7 discuss Russian crude price cap

Oil prices drop more than 3% as G7 discuss Russian crude price cap
Oil prices drop more than 3% as G7 discuss Russian crude price cap

Oil is down more than 3.2% on Thursday, as a pending G7 deal to cap Russian oil prices discussed on Friday could reverse that trend, with Moscow now saying it will retaliate by refusing to sell oil.

Russia has finally openly stated that capping its oil prices will be costly for energy markets.

In a statement released Thursday Kommersant.ruRussia has declared that it will not supply oil to countries that decide to impose a price cap on its oil.

Deputy Prime Minister Alexander Novak has called the G7 countries’ idea of ​​capping the price of Russian oil “utter nonsense” that will destabilize the entire industry.

According to the minister, Russia will not supply any oil and petroleum products to countries that support the establishment of such a limit.

We simply for those companies or countries that will impose restrictions, will not supply them with oil and petroleum products, since we will not work under non-market conditions,“said the Deputy Prime Minister.

Novak further stated that Russian companies are sufficiently prepared for a European Union oil embargo and will manage to keep oil production at the same level. According to Novak, Russia [production by year-end could reach 520-525 million tons comparable to last year’s production of 524 million tons.

The cap scheme, which was first brought to the table in June by the U.S. Treasury Secretary Janet Yellen, could be set at half of the Russian purchasing price although the shape of the final deal and price level have yet to be announced. The initial idea was to maintain a cap above Russia’s cost of production to keep Russian oil on the market but reduce revenues for its war coffers.  

On Wednesday, Yellen said she was “optimistic” that the G7 would come to a price-capping agreement. She also met with UK Chancellor of the Exchequer Nadhim Zahawi, who has offered British support for the plan, but noted that to be more effective, the plan would require more countries to come on board. 

While Russian crude is selling at a $20/barrel discount now, it has not worked to stymie Moscow’s oil revenues thanks to Russia finding new markets in India and China. 

New reports have emerged that during the second quarter, India slashed its crude imports from the United States by one million metric tonnes while sharply ramping up imports of discounted Russian oil. India’s energy mix now looks dramatically different from a year ago. Last year, Russian oil in India’s crude basket amounted to a paltry 2.2%, while the U.S. was 9.2%; right now, Russia accounts for nearly 12.9% of India’s crude imports, while the U.S. share has tumbled to just 5.4%

By Alex Kimani for Oilprice.com

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