The US and the West "limit" the price of Russian oil stirred up the international market

European Commission President Ursula von der Leyen announced on social media on December 2 that the European Union, the G7 and other global partners have agreed to impose a global price cap
of $60 per barrel on oil exported by sea from Russia.
According to the agreement, once the price of oil exceeds $60 per barrel, it will be prohibited to provide insurance, financial and other services
for Russian oil transportation.
As early as September this year, the G7 decided to impose price limits on Russian crude oil from December 5 and Russian refined petroleum products from February 5 next year
.
Analysts here pointed out that no matter how effective the "price limit" sanctions of the United States and the West are in resolving the Russian-Ukrainian conflict, more importantly, it has undermined the principle
of market mechanism for oil trading.

The European Union and the United States have their own thoughts on the "price limit"

On December 2, the Europeans finally set a price cap
for Russian oil.
This fact shows that the introduction of the initiative is far from easy
as envisioned.
The United States and the West once abhorred "artificial intervention in market pricing", but now they have lived "what they hated at the beginning"
.
So what do the US, EU and G7 want today?

Over the past few months, the EU has been engaged in a heated debate over the price cap, with member states quite divergent
.
Countries such as Malta and Greece do not support price caps, fearing that they will hurt their oil shipments and corresponding insurance operations
.
Greece, for example, has the world's largest fleet of tankers that ship Russian oil to Asia
.
Once the new restrictions are imposed, Russia, the country's main customer, will be lost
.
At the last minute before the deal, Poland was still rejecting
the $60 per barrel threshold.
Its stance has been extremely aggressive, calling for a maximum price of $30 per barrel
.
In contrast to Poland, Hungary is "fighting" for its own interests in the EU, seeking exemptions from the cap on crude oil prices from Russia
.

Overall, the EU's $60 per barrel limit takes into account the interests and concerns
of individual member states.
First, the EU's price threshold of $60 per barrel is not much different from the current discounted price of Russian "Ural" crude oil of $55 to $65 per barrel, meeting the conditions offered by Greece, Malta and other countries
.
Second, Poland's acceptance of the text of the $60 agreement, which was endorsed by most EU countries, prompted the EU to accept two additional conditions: the cap must always be at least 5% below the average oil price, and the limit should be reviewed every two months
.
In other words, the maximum limit price is constantly changing
according to the market price.
Third, Hungary has been successful in negotiating a price cap on Russian oil and is "exempt from the implementation of the oil price ceiling.
"

The United States and the West "limit prices" Russian oil, on the one hand, in order to reduce Russian oil export revenues; On the other hand, they do not want Russia, an important oil producer, to leave the world oil market and thus bring problems to themselves
.
If Russian oil is drastically reduced on the world market, the balance between supply and demand will be disrupted, causing a sharp rise
in oil prices.
In Europe, countries are still grappling with shortages and rising prices for energy sources such as gas and coal; In the United States, world oil prices also directly affect the cost of gasoline and diesel for ordinary people, and are directly related to the effectiveness
of the Fed's fight against inflation.

Based on this, the European Commission has also introduced a transition period
for the introduction of a price cap on Russian oil.
Russian oil loaded before December 5 and unloaded by January 19, 2023, purchased in excess of the price limit, will not be covered by the Cap rule
.

Following in the footsteps of the EU, G7 countries will approve this "price limit" threshold
.
Given that the G7 and Australia have previously reached an agreement on a limit of $60 per barrel, countries are unlikely to have problems
in the ratification process.
Kirby, the White House NSC strategic communications coordinator, said the $60 a barrel price cap was appropriate and "we think it will work.
"

Russia denounced the US and Western measures as "very ridiculous"

Russian Presidential Press Secretary Dmitry Peskov said on the 3rd that Russia will not accept the upper limit of oil prices, and "after a quick analysis, it will decide how to arrange work"
.

In the more than half a year since the Russian-Ukrainian conflict, the United States and the West, including the G7, have made a fuss
about Russian oil, gas and coal.
The United States and Canada "theoretically" refused to buy Russian oil this spring, Britain completely stopped importing Russian oil and gas in June, while Japan, as well as Germany, France and Italy, sharply reduced Russian oil imports
.
On May 30, the European Union announced a ban on Russian oil and petroleum products
transported by tankers from December this year.
However, the actual results have disappointed the supporters of the sanctions
.

In the face of the "price limit" measures of the United States and the West, Russia will not choose to sit still
.
Rikov, an expert at the Russian Institute of Energy and Finance, said that the Kremlin will definitely retaliate against the "price limit" measures taken by the United States and Europe
.
He said that even if the current "limit" of $60 per barrel is basically in line with the price of
Ural crude oil, it is difficult to accept.
In other words, Russia believes that this move is "not very harmful and extremely insulting"
.

Over the past few months, Russia has repeatedly stressed its official position
that it "will not cooperate with foreign companies on unfavorable terms.
" Russian President Vladimir Putin recently stressed that Moscow will not offer anything abroad that goes against its own interests
.
Russian Deputy Prime Minister Alexander Novak recently said that this plan is "very absurd" and will lead to serious instability
in the oil market.
The imposition of this restriction by "unfriendly countries" "implies interference with market instruments, and Russia will begin to supply oil to countries operating according to market conditions"
.
Slutsky, chairman of the Russian State Duma's International Affairs Committee, also said that Brussels' introduction of "price limit" measures for Russian oil is just catering to the ambitions of "partners" on the other side of the Atlantic, and the EU's move is putting its own energy security at risk
.

Russian energy analysts pointed out that once implemented, although this move will not collapse the global energy market, it is enough to cause international oil prices to soar
.
The International Energy Agency calculates that Russia's oil shipments to Western countries have declined by 2.
2 million barrels per day since May, and two-thirds of that has been transferred to China, India and Turkey
.
At present, India has become the largest buyer
of Russian seaborne oil.

At the same time, Russia is also trying to seek the support of other oil-producing countries in the
"OPEC+" mechanism.
Saudi Arabia and other oil producers are unhappy with U.
S.
and Western interference in markets and fear that OPEC members
could be their next targets.
Driven by Russia, OPEC+ countries reduced their production quotas in November, pushing up oil prices
.

The effect of the "limit price" may be seen by the end of this year

As the December 5 deadline approaches, the price of Ural Russian benchmark crude oil is approaching $
60 per barrel.
The Russian Ministry of Finance announced on December 1 that the average price in November was $66.
5, down 6%
from the previous month.
On November 30, excluding oil freight and tanker insurance, the price of Ural crude oil shipped from the Primorsky port in the Russian Baltic Sea has fallen to $
48 per barrel.

With the implementation of the "price limit" measures in the United States and the West, international buyers of Russian oil and its petroleum products will face an either/or choice: either agree to buy at a price that does not exceed the established limit, or accept the fact that
the West will completely prohibit its companies from providing transportation and insurance services for Russian oil and products.

For Russia, a complete interruption of oil trade with "unfriendly countries" will suffer
.
After the Russian-Ukrainian conflict, Russia was forced to sell Ural oil at a discount, which is currently estimated to be between
$55 and $65 per barrel.
From an economic point of view, the threshold of $60 per barrel is acceptable, and the federal budget deficit will only begin to grow
sharply at $40 to $45 per barrel.
However, Rosneft will have to face rising transportation costs and declining cargo turnover
.
Once the oil trade with Europe is interrupted, the tankers transporting Russian oil will take three or four days to arrive at the Indian port from the Russian port in the Baltic Sea to the European port to about one month to arrive at the Indian port
.
Due to the implementation of the "price limit" measures, the cost of transporting Russian oil from the Baltic Sea to India has risen to $
20 per barrel.
If you calculate the cost of extraction, taxes and discounts, Rosneft's profits are already very small
.
Novak also admitted a few days ago that the maximum price will inevitably lead to a decline in investment, a decrease in oil supply and a shortage
in the market.

Francisco Blanche, head of global commodities and derivatives research at Bank of America, predicts that Russia's oil supply will be reduced by about 1 million barrels
per day after December 5.
If the market loses more than this amount, Brent crude will exceed $100 per barrel, and futures may jump to $
110 per barrel by the end of 2023.
The US "Capitol Hill" quoted energy analyst Dolan as saying that the United States and the G7 may soon suffer a historic fiasco
due to the cap on the price of Russian oil.
He said that the world energy market still needs more than supply, and "the risk of skyrocketing oil prices after the introduction of restrictions is high"
.

People in the Russian energy sector believe that the extent to which Russian oil production is affected by sanctions and embargoes will become clear
by the end of December.
Russian energy expert Potavin pointed out that Russian oil and its products may face three situations
in the future.
In the best-case scenario, oil prices will rise to $70 per barrel on the basis of maintaining the current level of 10.
8 million barrels per day; In the worst-case scenario, Ural crude oil fell to $50 per barrel, and production fell by 1.
2 to 1.
7 million barrels per day; In the middle case, Russian oil prices will remain around $60 per barrel, and production will only decrease by 300,000 to 500,000 barrels
per day.

According to statistics from Western countries, since the Russian-Ukrainian conflict in February this year, Russia has obtained $71 billion through oil sales to the European Union, exceeding Russia's annual military expenditure
of $60 billion.
Observers here point out that the goal of Western countries to reduce their ability to finance military operations in Ukraine by "capping" the price of Russian oil will not change
.
Blanchard, chief economist of the U.
S.
State Department, said on December 2 that the "price limit" threshold
for Russian oil may be adjusted if the goal of reducing Russia's income from financing military operations in Ukraine cannot be achieved.