On December 27, Russian President Vladimir Putin signed a decree on countermeasures against imposing a maximum price cap on Russian oil and petroleum products.
This decree comes in response to the Group of Seven agreement on imposing a price ceiling of $60 per barrel of Russian oil transported by sea, as the decree prohibits the sale of oil and petroleum products if the sales contract is based on a maximum price of Russian oil, although the decree grants Putin The right to exceptions to this rule.
According to writer Simon Watkins, in an article published by the American “Oil Price” website, this ban will become effective from February 1 next and will apply “to shipments of Russian oil to foreign legal entities or individuals under any envisaged contracts, directly or Indirect, that is, the application of the price cap mechanism.” The decree will become effective on a date to be determined by the Russian government, but not earlier than February 1.
Officially, it seems that there is a justification for imposing a price ceiling and Russia's reaction to it. In this context, Russian Deputy Prime Minister Alexander Novak stated on December 23 that Russian oil production may decrease by 5% to 7% due to G7 sanctions on the sector in the wake of the Russian war on Ukraine last February.
OPEC expects Russian oil production to decrease by 850 thousand barrels per day, to average 10.1 million barrels per day in 2023, while the International Energy Agency expects Russian production to decrease by 1.4 million barrels per day in this period.
The writer notes that the unofficial version says that there is no reason to expect any significant decrease in the production of oil or Russian oil products in 2023 for several reasons, and one of the most important of these factors is that Russia is still making a lot of money from every barrel of oil it produces, and therefore It is in their interest to maintain production at normal levels before the Ukraine war in order to increase government revenues.
Price paradoxes
for a very long time;
The price of a barrel of Russian Brent oil was about $40, the same price as the best oil producers in the US, and even with a price cap of $60 there was still a very good profit margin.
The 30% or so discount demanded by some of the big buyers since the Ukraine war began - most notably China and India - is from the market price of oil, not from the price ceiling, so with Brent crude now at around $80, Russia receives About $56 a barrel of its oil from these buyers, a price that still represents a nice profit.
Ironically, the G7 cap is still higher than the current market price, minus the huge discount at which Russian oil is sold to some other buyers around the world.
Another element that must be taken into account in the informal reality of the global oil supply and demand rule is that Russia can still work to counter price caps or sanctions imposed by the Group of Seven or any other group through a number of anti-sanctions mechanisms that Iran has resorted to. Previously since it was subjected to various sanctions in 1979, as the writer puts it.
oil shipments
The writer confirms that bringing more oil into Europe at better prices than the price ceiling allows will not be a problem for Russia, as it can provide incorrect information about destinations in shipping documents.
According to the writer;
Many high-level oil industry sources in the areas of US and EU energy security believe that Russia can secure very quickly at least three-quarters of the sea freight needed to transport its oil to regular buyers, and up to 90% in a few weeks. Then.
Are you losing global oil markets?
According to International Energy Agency figures, before the war, Russia exported about 2.7 million barrels per day of crude oil to Europe, and another 1.5 million barrels of oil products, mostly diesel. Russia's total global oil exports amounted to 7.8 million barrels per day, two-thirds of which of crude oil and condensate at the end of January 2022.
According to the above possible scenario;
Global oil markets would only lose between 780,000 bpd and 1.95 mb/d of pre-war levels to Ukraine from Russian oil, even with price caps in place, all other factors aside.
Even this amount of loss in supplies is very unlikely, as Iran has a huge fleet of tankers, part of which can be provided to Russia, as can China, Hong Kong, and India, among other countries, as the author sees.
The writer concluded that Putin and the Russian oil companies are fully satisfied with setting a maximum oil price at $60 per barrel of Brent equivalent, as well as all buyers who can get Russian oil at this level.
The writer believes that the United States is completely satisfied with India - one of the largest buyers of Russian oil since February 2022 - continuing to buy oil at prices that exceed the price ceiling imposed by the Group of Seven countries.