Yellen calls G7 and Australia's price cap on Russian seaborne crude oil a success

US Secretary of the Treasury Janet Yellen has stated that the price cap on Russia has made headway just a month after coming into effect.

PHOTO: Getty Images

“While the crude oil price cap has only been in effect for around a month, we have already seen early progress towards both of those goals – with senior Russian officials having admitted that the price cap is cutting into Russia’s energy revenue,” says Yellen in a meeting with Chrystia Freeland, Canada’s Deputy Prime Minister and Finance Minister.

A price cap of $60/bbl was imposed on Russian seaborne oil by the G7 and Australia on 5 December. The price cap prevents western maritime insurance, finance, and other companies from handling shipments carrying Russian crude oil unless purchased at or below the cap level. It also prohibits shipping companies from providing tankers for Russian crude unless the oil is sold at or below the price cap.

While easing concerns about the supply crunch, Yellen has explained that despite the price cap, the global energy markets remain well supplied, adding that “public reports indicate that countries are using the price cap to drive steep bargains on the price of Russian oil imports.”

ANZ commodity strategist Daniel Hynes wrote on social media that the “combined Russian exports to China, India, and Turkey hit their lowest since October, and are showing little signs of reversing the downward trend.” He further notes that "Russian Urals are trading at just $38/bbl", which is way below the G7 price cap, indicating that Russia is offering steep buyers’ discounts to keep exports flowing.

According to the European Commission, there will be a further price cap on Russian refined petroleum products from 5 February 2023.

Following the December price cap, Russian President Vladimir Putin signed an executive order banning the sale of oil and oil products to any nation that gets behind the G7 price cap in December last year. Deputy Prime Minister Alexander Novak estimates Russia will cut production by 500,000-700,000 b/d this year.

Russia could further reduce its output if another price cap is imposed. Global crude oil markets could suffer from tight supply if Russia cuts its output by more than 700,000 b/d to counter the G7 price cap. This would drive Brent prices upwards.

By Konica Bhatt

Please get in touch with comments or additional info to news@engine.online