Russian Oil Price Cap Will Not Apply To Resold Cargoes

Russian Oil Price Cap Will Not Apply To Resold Cargoes 1

Yves here. You cannot make this stuff up. The West thinks it has spared itself much pain from its Russian oil price cap scheme by allowing third parties to buy Russian oil at the capped price, then mark it up for G7 buyers. Permitting on-selling allows traders to store oil (as in combine it from several sources). And this regime will allow  India’s practice of refining Russian oil and selling the resulting gas and other end-products.

In the meantime, Treasury Secretary Janet Yellen had said pretty much everyone in the world would have to participate, yet uptake has been pretty poor. As we indicated, even G7 member Japan has said it needs Russian oil. That’s a warning that Japan will only at most pretend to participate in the regime if Russia lives up to its promise of not selling oil at the Western cap.

By Michael Kern. Originally published at OilPrice

The United States and its Western allies have agreed that a cargo of Russian oil will only be subject to the price cap mechanism at the first sale of the oil to a buyer on land, sources familiar with the ongoing discussions told The Wall Street Journal on Friday.

This means that the upcoming price cap will not apply to the resale of the same Russian cargo. The price cap will not apply to a cargo of Russian crude processed into gasoline when the gasoline is sold, either.

However, intermediary sales and trades of Russian oil happening at sea should be subject to the price cap, according to the Journal’s sources.

The U.S. and the G7 allies and Australia are working on setting the details of the price cap before the December 5 deadline, after which the EU embargo on imports of Russian crude oil by sea enters into force. The G7 group of the most industrialized nations and the EU are looking to introduce a price cap on Russian oil, aiming to reduce Vladimir Putin’s oil revenues for his war chest. The allies will ban maritime transportation services for Russian oil unless the products are purchased at or below a certain price cap.

Reports emerged this week that the G7 members had agreed to set a fixed price for Russian oil exports as a cap rather than a price set as a discount to a benchmark, Reuters reported, citing an unnamed source familiar with the discussions. The price itself has yet to be determined, the source said, adding that, according to the G7, “This will increase market stability and simplify compliance to minimize the burden on market participants.”

Earlier, a price range in the mid-$60s was mentioned as a possible target for the cap as it represented the range in which Russian oil has traded before the last rally.

While considering all the parameters of a price cap, the U.S. Treasury issued this week guidance that says Russian crude oil loaded onto a vessel at the port of loading for maritime transport prior to December 5 will not be subject to the price cap if the oil is unloaded at the port of destination before January 19, 2023.

Print Friendly, PDF & Email