News from the Financial Associated Press on December 8 (edited by Xia Junxiong)Russian energy ministry officials have dismissed fears that the Group of Seven (G7) price cap on Russian oil, which went into effect this week, would destabilize Russian oil production capacity.
Russian First Deputy Minister of Energy Pavel Sorokin issued a statement saying: “According to the corresponding market principles, most markets can buy our goods.” Sorokin added that fluctuations in oil production will not be serious , will not be higher than the spring fluctuation value.
After many rounds of difficult negotiations, the European Union and the G7 capped the price of Russian oil at $60 a barrel. Oil watchers worry that the mechanism could force Russia to curb supply, even though most of the crude Russia is currently selling is below $60 a barrel.
Officials in Russia, which currently accounts for about 10 percent of global oil production capacity, have repeatedly said they would not sell oil to any country with a price-capping mechanism. If Russia sticks to that stance, it could be forced to cut output.
After the outbreak of the Russia-Ukraine conflict, Western countries imposed the most severe international sanctions ever imposed on Russia. The energy industry, which is the backbone of Russia’s economy, is the key target. Affected by Western sanctions and the voluntary avoidance of buyers, Russia’s oil production capacity has fluctuated this year.
Industry data show that in April this year, Russia’s oil production capacity was about 10.05 million barrels per day, down from 11.08 million barrels per day in February.
The International Energy Agency (IEA) predicts that Russia may struggle to find alternative markets after the European Union’s ban on Russian oil takes effect. The European Union banned the import of Russian crude oil from December 5, and banned the import of Russian petroleum products from February 5 next year.
The IEA predicted last month that by the end of March next year, Russia’s oil production may drop by nearly 2 million barrels per day from pre-war levels, and that output will average just 9.6 million barrels per day next year.
The Russian central bank warned this week that price caps and the European ban were a new shock that would significantly reduce activity in the Russian economy.
Sorokin disagreed with the central bank’s report, saying the price cap would have limited impact on the economy.
Sorokin said: “Economic recession risks may increase volatility, but the global market is not oversupplied with oil, and there are obvious shortages of some oil products such as diesel, these factors are supporting oil prices.”