Russian Urals oil jumped $2-$3 above the $60 per barrel Western price cap on Thursday, boosted by strengthening in international benchmark Brent and additional export cuts announced by Russia in August, Reuters calculations based on traders’ data showed.
The Group of Seven nations, Australia and the 27 European Union countries on Dec. 5 imposed a price cap on Russian crude oil transported by ship, aiming to reduce Moscow’s ability to finance its war in Ukraine and preserve stability in the global oil market.
The price cap comes on top of an EU embargo on buying seaborne Russian crude oil as a measure aimed mainly at providing third-party countries with an option to still buy it if the transaction is conducted at or below the price cap level.
Below are details on how the price cap is supposed to work:
Russian Urals oil jumped $2-$3 above the $60 per barrel Western price cap on Thursday, boosted by strengthening in international benchmark Brent and additional export cuts announced by Russia in August, Reuters calculations based on traders’ data showed.
The Group of Seven nations, Australia and the 27 European Union countries on Dec. 5 imposed a price cap on Russian crude oil transported by ship, aiming to reduce Moscow’s ability to finance its war in Ukraine and preserve stability in the global oil market.
The price cap comes on top of an EU embargo on buying seaborne Russian crude oil as a measure aimed mainly at providing third-party countries with an option to still buy it if the transaction is conducted at or below the price cap level.
Below are details on how the price cap is supposed to work:
PRICE CAP LEVEL
The price cap was set at $60 per barrel.
ADJUSTING THE PRICE CAP
The level is to be reviewed every two months to ensure it stays at least 5% below the average price for Russian crude as determined by the International Energy Agency.
Each change in the cap must be unanimously agreed by all 27 countries of the European Union and then by the G7.
After each change of the cap there will be a 90-day grace period to make sure no ship is caught at sea with a cargo at a price that is no longer valid.
WHAT IS ALLOWED
G7 and EU insurance and reinsurance companies can provide services for tankers carrying Russian crude oil, and institutions can finance Russian crude transactions, provided that such cargoes are bought at or below the price cap.
Shipping companies can also provide tankers for the transport of Russian crude provided the oil is sold at or below the price cap.
Financial and shipping services can also be provided in an emergency and specific projects deemed essential for the energy security of certain third-party countries may be exempted from the price cap.
PENALTIES
If a third party country-flagged vessel intentionally carries Russian oil above the price cap, EU operators will be prohibited from insuring, financing or servicing the vessel for 90 days after the cargo has been unloaded.
EU-flagged vessels will be subject to penalties according to national legislation, but the EU is already working on a penalty of 5% of global turnover for companies that break EU sanctions.
Source: Reuters (Reporting by Jan Strupczewski in Brussels; editing by Jason Neely)