The EU, U.S. and allies also put curbs on shipping, insuring and funding crude globally
Oil Price Wavers as Russia Cap Kicks In
The West imposed sanctions
on Russian crude, pitching the
energy conflict with Moscow
into an unpredictable new phase
that could inject further volatility into global oil markets
The European Union and
U.K. barred inbound shipments
of Russian crude Monday—a
watershed for a continent
striving to end its dependence
on Russia’s fossil fuels after
Moscow invaded Ukraine and
weaponized supplies of natural gas. In tandem, the EU, the
U.S. and allies put curbs on
shipping, insuring and funding
Russian crude worldwide.
Oil prices wavered. Mostactively traded futures contracts for Brent, the benchmark for international crude
sales, slipped 3.4% to $82.68 a
barrel. Analysts and traders
said prices initially got a boost
from loosening Covid-19 restrictions in China, which are
likely to lift demand in the
world’s second-biggest economy, but those gains faded in
morning trading in New York.
The restrictions are the first
major attempt to curb Moscow’s fossil-fuel revenue,
which steadied the Russian
economy after a barrage of
sanctions on other industries.
But there is a deliberate loophole, enabling companies to facilitate Russian oil shipments
to countries outside Europe if
the price is no higher than $60
a barrel.
That carve-out reflects concern that Russia, the world’s
biggest exporter of crude and
refined fuels, could wreak
havoc through energy supplies
even as its military campaign
in Ukraine falters. It was designed by the U.S., where officials feared severing Russia
from Western shipping and insurance entirely would ricochet back on the American economy via higher oil prices.
The untested nature of the
sanctions makes the impact on
energy markets hard to predict. Some analysts say the
relatively high level of the cap
means Moscow’s crude is
likely to flow to buyers around
the world, keeping a lid on the
market. But Kremlin officials
have said they would refuse to
accept the cap, which could
lead to a drop in exports, even
though it is above the current
price of Russian crude.
How Russia responds is the
first big unknown for traders
and officials. On Sunday, Deputy Prime Minister Alexander
Novak said the Kremlin was
considering ways in which it
could ban companies from applying the price cap, and that
output could fall.
“We will sell oil and petroleum products to those countries that will work with us on
market terms, even if we have
to slightly cut production,” he
said in an interview with a state-owned broadcaster.
Despite the U.S.’s aim to
keep Russian oil flowing to the
global market, uncertainty
around the cap has dried up
sales of crude from Russia in
recent weeks.
Monthslong negotiations
P over the level at which the cap
should be set went down to
the wire Friday, leaving traders, shippers, refiners and insurers with little visibility until days before the sanctions
took effect. Their wariness
made it challenging for Russian producers to sell cargoes.
Prices for Moscow’s crude
have tumbled. Estimates vary
because of the increasingly
opaque nature of the Russian
market, but companies that
assess prices agree that they
have skidded during the past
month to levels below the cap.
Argus Media, one such firm,
says the price of Urals crude
exported from Primorsk on the
Baltic, fell to about $49 a barrel, down by 29% from the
start of November. S&P Global
Commodity Insights pegged
the price at about $53.50 a
barrel. The prices don’t include
the cost of insuring or shipping the crude, which isn’t included in the $60-a-barrel cap.
“It’s really the uncertainty that created the problem,”
said Livia Gallarati, senior oil
analyst at Energy Aspects. “If
the price cap had been announced a few months ago we
may not be in this situation,
and some of the Asian buyers
that are currently staying
away from Russian barrels
may have bought more.”
OPEC+, an alliance between
the Organization of the Petroleum Exporting Countries,
Russia and other producers,
acknowledged the unsettled
backdrop Sunday. The cartel
locked in current production
levels to give it more time to
assess the market effect of the
price cap at a virtual meeting