Prof. ST Hsieh
Director, US-China Energy Industry Forum
December 3, 2022
Some of the reactions were expected and no surprises here:
- The Kremlin rejects the price cap.
- The White House welcomes the price cap and believes it will work.
- Zelenskyy is not happy with the US$60/Barrel cap.
The price cap will be enforced on December 5th, 2022, we will have to wait and see whether it works or not. Further, there is no telling how the global oil market might react.
But “Russia will not sell oil to any nation that follows thru with this price cap” will have major impacts. European nations will not import any seaborne oil from Russia, Canada and US are net energy exporters so this Russian reaction will not impact these nations anyway. But a major nation, Japan, which is a member of G7 will have to follow the price cap. However, Japan depends on Russia oil so it will be under stresses. Because Russia will NOT export any oil to Japan no matter of the price.
But as of now, Russian oil is priced below US$60/barrel, then the price cap will be meaningless. The whole “exercise” of price cap will also be meaningless. It remains to be seen when US+EU will review or reduce this price cap.
The US and EU, however, are reshaping the basic principles of the functioning of free markets, by implementing this price cap scheme. Whether it works or not, it is an unprecedented assail to the global trade system and the consequences are beyond imagination. It is a full-scale economic warfare against the world. Specifically, Russia has announced that, as a last resort, Russia will stop oil production then there would be no functional global oil market. Further, if the price of crude oil, a major global commodity, could be manipulated by major global powers, then what is next? Natural gas? Grains?
The last news item is that “Russia assembles a ‘shadow fleet’ as Putin tries to bust western sanctions.” Will it lead to a modern-day re-run of Pirates of the Caribbeans?
Let us wait and see!
Russia rejects $60-a-barrel cap on its oil, warns of cutoffs
JAMEY KEATEN Sat, December 3, 2022 at 5:40 AM
KYIV, Ukraine (AP) — Russian authorities rejected a price cap on the country’s oil set by Ukraine’s Western supporters and threatened Saturday to stop supplying the nations that endorsed it.
Kremlin spokesman Dmitry Peskov said Russia needed to analyze the situation before deciding on a specific response but that it would not accept the price ceiling. Russia’s permanent representative to international organizations in Vienna, Mikhail Ulyanov, warned that the cap’s European backers would come to rue their decision.
“From this year, Europe will live without Russian oil,” Ulyanov tweeted. “Moscow has already made it clear that it will not supply oil to those countries that support anti-market price caps. Wait, very soon the EU will accuse Russia of using oil as a weapon.”
“It would be necessary to lower it to $30 in order to destroy the enemy’s economy faster,” Andriy Yermak, the head of Zelenskyy’s office, wrote on Telegram, staking out a position also favored by Poland — a leading critic of Russian President Vladimir Putin’s war in Ukraine.
Russia’s crude has already been selling for around $60 a barrel, a deep discount from international benchmark Brent, which closed Friday at $85.42 per barrel.
The Russian Embassy in Washington insisted that Russian oil “will continue to be in demand” and criticized the price limit as “reshaping the basic principles of the functioning of free markets.” A post on the embassy’s Telegram channel predicted the per-barrel cap would lead to “a widespread increase in uncertainty and higher costs for consumers of raw materials.”
“What happens in China will help shape whether the price cap has any teeth,” said Jim Burkhard, an oil markets analyst with IHS Markit. He said dampened demand from China means most Russian crude exports are already selling below $60.
Russia Won’t Accept $60 Price Cap on Its Oil, Kremlin Says
Sat, December 3, 2022 at 6:05 AM
(Bloomberg) — Russia will not accept the $60 per barrel price cap for its crude oil agreed upon by the European Union, the state news agency Tass reported, citing Kremlin spokesman Dmitry Peskov.
It was the Kremlin’s first reaction after European diplomats decided on the threshold on Russian oil Friday evening following lengthy negotiations.
“We’re analyzing it now,” Peskov said on Saturday. “Some preparation has been made for such a cap. We will not accept this cap.”
The Kremlin has been drafting a presidential decree that will prohibit Russian companies and any traders buying the nation’s crude from selling it to anyone that participates in a price cap mechanism, a person with knowledge of the matter said at the end of last month.
The decree would essentially ban any reference to a price cap in contracts for Russian crude oil or products, and prohibit loadings destined for any countries that adopt the restrictions.
Russia’s flagship crude oil rallied to just above $50 a barrel on Thursday, but has been well below the European Union’s $60 price cap for almost two weeks.
White House welcomes EU progress on Russian oil price cap
Fri, December 2, 2022 at 9:40 AM
WASHINGTON (Reuters) -The White House on Friday welcomed news that the European Union was “coming together” on a $60 per barrel price cap on Russian seaborne oil, and said it remained convinced that the deal should help limit Russian revenues.
“We still believe … that a price cap will help limit Mr. Putin’s ability to profiteer off the oil market so that he can continue to fund a war machine that continues to kill innocent Ukrainians,” national security spokesman John Kirby told reporters.
Kirby said Washington believed $60 per barrel was the appropriate level for the price cap and would allow it have the desired effect. “We think it’s the right amount and we think it’ll have a positive effect.”
Kirby said the intention of the price cap had always been twofold – to limit Russia’s ability to profit from the oil sales while helping balance supply and demand.
“Just a month or so ago, the indications were that Mr. Putin was charging $100 per barrel, so this will be a significant drop,” Kirby said, adding that the coalition partners reserved the right to adjust the price cap in the future.
“We’re going to keep monitoring it, reviewing it, to see if that’s right, and does it need to be dialed up or down based on how things go,” he said.
Russia assembles a ‘shadow fleet’ of more than 100 oil tankers as Putin tries to bust western sanctions, report said
Sam Tabahriti Sat, December 3, 2022 at 3:38 AM
- Russia has an oil tanker “shadow fleet” to bypass western sanctions, the Financial Times reported.
- Shipping brokers and analysts estimated that Moscow added over 100 ships to the fleet, per the FT.