As reported by Reuters
The G7 coalition plans in February to introduce two new price caps on Russian oil products: one for goods traded with a premium over the price of crude oil, and another for those sold at a discount.
According to sources, the G7 comprises the United States, Japan, Australia, and Canada, as well as the 27 European Union countries, which had previously imposed a price cap on Russian oil at $60 per barrel and continue the embargo on seaborne imports of crude oil.
From February 5, the coalition will impose price caps on Russian-origin petroleum products, notably diesel fuel, gas oil, and mazut, with the aim of reducing Moscow’s revenues from energy exports and limiting funding for the war in Ukraine.
Why these restrictions are more complex and how they plan to implement them
According to a source, establishing two separate caps is more difficult than a limit on crude oil cargoes, as the market features many different petroleum products, whose prices depend on procurement terms, not just on where they are produced.
Diesel fuel and gas oil are typically traded with a premium to the price of crude oil, while mazut is often sold at a discount. It is precisely for this reason that the coalition is considering two different threshold prices.
The main goal is to reduce Moscow’s revenues, but at the same time to avoid a global disruption of the balance in world energy markets and rising prices for consumers in member countries.
Prices for oil products depend on technical characteristics, notably sulfur and metals content. For example, low-sulfur mazut can currently be sold about $150 per ton higher than high-sulfur mazut.
Experts estimate that the difference between diesel and Brent prices can be about $40 per barrel.
It is expected that the introduction of new restrictions will affect global prices and Russia’s revenues from energy exports, while aiming to minimize impact on consumers in member countries and stabilize the market.
Ultimately, the goal of the G7 is to weaken the financial base of the Russian economy without significant fluctuations in global energy markets and without undue impact on end consumers.
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