The EE is considering a cap on Russian diesel at $100 a barrel – How will it work?

Plan to impose a ceiling at the price of Russian diesel at 100 dollars a barrel the EU is currently considering, a level that could help avoid the worst effects of the ban on fuel imports to be imposed in Moscow on February 5.

The E.U. is considering a cap since the G7 countries have proposed a price fluctuation framework based on the existing cap on Russian crude. The new cap will be imposed 10 days from today, when the E.U. will ban almost all imports of refined petroleum products under sanctions over Russia’s invasion of Ukraine.

Intention of the E.U. and the G7 is to impose a cap on Russian exports to third countries, since the latter’s companies will be the only ones able to access Western services if they comply with the mandates. The $100-a-barrel cap is expected to be imposed on products such as diesel, which trades at higher levels than crude, sources said. A lower limit, at $45, could be imposed on petroleum fuels, but nothing has yet been finalized as negotiations between member countries are ongoing.

The negotiations will have to strike a balance between two competing objectives: on the one hand to limit the revenue of of Russia from its oil activities, on the one hand, to prevent possible price increases or any shortages in basic products that are in demand on international markets. The E.U. it will have to reach a unanimous consensus on the cap issue, to then be approved by the G7.

The diplomats of the E.U. will formally begin talks on imposing a cap tomorrow Friday, with negotiations expected to continue in the coming days. Several European officials are concerned about possible diesel shortages when the import ban goes into effect, so the price cap is intended to ensure that Russian exports continue to be channeled to other parts of the world, keeping global supply in balance. .

Of course, there is much uncertainty as to whether other regions will fill Europe’s buying gap when the import ban goes into effect on February 5, but a cap acceptable to Russia would help keep trade flowing.

“We think Russian crude will not be affected by this. The flows will continue for the most part, but the cap will reduce Russia’s revenues,” he says Alan GelderWood Makenzie’s vice president of refining, chemicals and oil markets.

It should be noted that Northwestern European diesel futures are trading at $130 per barrel, according to data from ICE Futures Europe.

However, Russian fuel is currently trading below prices in other markets, meaning the impact on Russian producers’ and traders’ revenues will be limited, S&P Global Commodity Insights estimates.

Although the cap may not have that much of an impact, the ban on imports into the E.U. is expected to cause a much greater sensation. The measures will cut Russia out of its top diesel export market and the E.U. from its main external supplier. In that sense, the cap is secondary to the import ban, says Richard Bronze of geopolitical consultancy Energy Aspects.

Officials from the G7 estimate that the Russian diesel currently sold in Europe will find buyers in Latin America and Africa. On the other hand, Europe will try to buy diesel from the Middle East and the US, which now sells larger quantities to Latin America and Africa. However, these changes will automatically mean higher transport costs, since the goods will travel much longer distances.

moneyreview.gr

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