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ENERGY SECURITY
The International Working Group for Russia Sanctions has called for a greatly decreased price cap on Russian fuel products as the EU deliberates the G7 price cap ahead of a Feb 5 implementation date.
- The group writes in a white paper that G7 governments should set a more aggressive price cap on Russian oil products than crude price cap level because:
- 1: "...it will have a major impact, since oil products account for a third of Russia’s total oil exports."
- 2: "Russia is in a weaker position with products than crude, since they are much harder to redirect, and have higher logistic costs."
- 3: "...stopping production would disrupt refineries."
- The group assesses that, "Russia is likely to keep supplying oil products even under a more aggressive price cap," as due to Russia's low production costs it remains rational to continue supplying oil to markets.
- The white paper recommends, "The price cap on crude oil to be progressively lowered in steps over time (“a ratchet”), ultimately aligning the crude price cap – and the price caps on diesel and other oil products - with the lower naptha and fuel oil price caps."
Figure 1: Proposed Level of Price Caps (Working Group on Russia Sanctions)
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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