Investing.com – Last week, we conducted an in-depth analysis on the imminent G7 sanctions on Russia’s oil price ceiling, and explained the two possible reactions that traders expect from the market and their impact on oil prices.
However, the G7 countries have yet to reach a consensus on the actual price of the oil price ceiling.
Poland, Latvia and Lithuania want to cap the price of Russian oil at $30 a barrel, as production costs in Russia are about $20 a barrel; however, the G7 countries want oil prices capped at $65-$70 a barrel; Greece, Malta Cyprus and Cyprus want a higher price per barrel, because their main shipping business in their country will be negatively affected by the price cap policy; at the same time, the European Commission has proposed a compromise price of 62 US dollars / barrel, but as of November 30 ( Wednesday), the parties still have not reached a compromise.
It should be noted that this week, the ports of Novorossiysk and Primorsk in western Russia traded at $55 a barrel, the lowest price since 2021.
That is, Russian crude has a discount of $30 per barrel. And that means that if there is an agreed price ceiling lower than that, it would be pointless, as shipping lines and insurers would not be sanctioned. Most of the Russian seaborne crude will remain on the market. Other Russian blends, currently trading at about $74 a barrel, could be affected, but these blends do not represent the bulk of Russia’s seaborne shipments.
Well, if the price cap is high enough, Russia can continue to sell discounted Urals at current prices, so, predictably, the price cap policy will have little impact on the market.
The market will experience chaos. European countries cannot continue to import Russian crude oil after December 5, but Europe can still import related products produced by other countries using Russian crude oil. In this way, as countries such as India, China, Turkey, and Indonesia increase their purchases of Russian crude oil and export more crude oil products to Europe, the prices of these products are expected to fall. But, on the other hand, if Europe had to import gasoline and diesel from Asia instead of the refineries in Rotterdam, their transportation costs and time would increase significantly.
Traders should also keep an eye on the OPEC+ meeting on Sunday, December 4.
Although the market was closed that day, but. Last week, OPEC appeared to be discussing increasing supply, but this week there were rumors that the group was discussing cutting supply.
Goldman Sachs believes that OPEC+ oil-producing countries are concerned about the recent price drop and will take action to cut production to support prices. However, five OPEC+ delegates said OPEC+ may decide not to change production quotas at all. Moreover, two other OPEC+ sources also indicated that the group will discuss cutting production quotas, but it is more likely that the group will keep the quotas unchanged.
More likely, since the OPEC+ meeting will be held a day before Russia imposes oil sanctions and price caps, OPEC+ has not yet had time to observe the market reaction, so they may avoid making any changes to production quotas. Later, if they deem it necessary, OPEC+ can also hold a “special” meeting to change production quotas.
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(Translation: Li Shanwen)