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EU implements oil price cap alongside G7 nations
7/12/2022
News
The European Union (EU) has implemented the oil price cap on Russian seaborne crude oil that was proposed by G7 nations earlier this year. Taking effect on 5 December, agreement to implement the price cap came just days before the EU-wide ban on Russian crude oil imported by sea entered into force on the same date.
The cap has been set at a maximum price of $60/b for crude oil and is adjustable in the future in order to respond to market developments. It has been implemented by all members of the ‘Price Cap Coalition’ (comprising G7 countries Canada, France, Germany, Italy, Japan, the UK and the US, as well as Australia), and the EU, through their respective domestic legal processes.
Commenting on the news, Ursula von der Leyen, President of the European Commission (EC), said: ‘The G7 and all EU member states have taken a decision that will hit Russia’s revenues even harder and reduce its ability to wage war in Ukraine. It will also help us to stabilise global energy prices, benefitting countries across the world who are currently confronted with high oil prices.’
While the EU’s ban on importing Russian seaborne crude oil and petroleum products remains fully in place, the price cap will allow European operators to transport Russian oil to third countries, provided its price remains strictly below the cap.
The price cap has been specifically designed to reduce further Russia’s revenues, while keeping global energy markets stable through continued supplies. It will therefore also help address inflation and keep energy costs stable at a time when high costs – particularly elevated fuel prices – are a great concern in the EU and across the globe.
As noted, the price cap took effect on 5 December 2022 for crude. It will do so for refined petroleum products on 5 February 2023, with the price for refined products to be finalised in due course.
Over half of Russia’s oil exports went to Europe prior to the war in Ukraine, according to the International Energy Association (IEA), with Germany the largest importer, followed by the Netherlands and Poland. However, since the conflict began EU countries have been taking steps to reduce their dependency, while the US has already banned Russian crude oil imports and the UK plans to phase them out by the end of the year.
Although the price cap is expected to be felt by Russia, Ukraine’s President Volodymyr Zelensky has called the cap ‘a weak position’ that is not ‘serious’ enough to damage the Russian economy, according to the BBC. The price cap’s impact will be partially softened by Russia’s move to sell its oil to other markets such as India and China. Russia is also reported to have stated it will not accept the price cap and has threatened to stop exporting oil to countries adopting the measures.
Meanwhile, the OPEC+ oil producers group announced that it plans to continue with its recently agreed 2mn b/d production cut through the end of 2023.
Oil prices rose slightly after the OPEC+ announcement and implementation of the price cap, with Brent crude rising about 0.6% to above $86/b on the morning of Monday 5 December.
In other oil related news, Equatorial Guinea’s Minister of Mines and Hydrocarbons, Gabriel Mbaga Obiang Lima, is to take over as the President of OPEC in 2023.
