EU talks stall over price level for proposed Russian oil cap

Ewa Krukowska and Alberto Nardelli, Bloomberg November 23, 2022

(Bloomberg) — Talks between European Union nations on where to set a proposed Group of Seven price cap on Russian oil bogged down Wednesday evening, as governments split over how to design the plan, according to people familiar with the matter.

The EU’s executive arm proposed a level of $65 a barrel, which Poland and the Baltic nations rejected as being too generous to Moscow, the people said. But several countries with major shipping industries, including Greece and Malta, don’t want to go below $70, the upper end of the range put forward by the EU earlier Wednesday.

Ambassadors are scheduled for more talks Wednesday night. If an agreement isn’t reached, they could reconvene as early as Thursday to continue their discussions. The EU’s energy ministers are also set to meet Thursday to discuss measures to contain the price of natural gas.

“We’re looking for ways how this can work and how one can find a common basis so that this can be implemented in an ideally pragmatic and efficient way while at the same time avoiding that this could lead to excessive disadvantages for the countries of the European Union,” German Chancellor Olaf Scholz told reporters Wednesday night. “But for my part, I want to say that I’m pretty confident that we’ll get this done soon.”

At $65, the price cap would be well above Russia’s cost of production. But since Russia is already selling its crude at discounts, a high cap would likely have minimal impact on trading.

The EU and G-7 had originally hoped to sign off on the price cap level on Wednesday. The cap needs the backing of all EU member states to be approved.

Oil prices fell earlier Wednesday after Bloomberg reported the proposed price range. One reason traders appeared to shrug it off is that insurers and shippers will simply have to make sure the cargoes they carry were sold below the cap price. If the cap comes in close to existing discount levels, Russia could claim it’s conducting business as usual.

“Russian oil currently trades at a significant discount compared to Brent, around $65 per barrel,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank in Brussels. “Should the G-7 price cap for Russian oil be set at a similar level, it wouldn’t do much harm to Russia.”

The aims of the price cap were always ambiguous: The US wanted to make sure Russian oil kept flowing while also trimming Moscow’s revenue. The EU sanctions initially were more focused on reducing revenue for Vladimir Putin’s war machine. The result of the hard-negotiated cap has been to soften the impact of the impending EU sanctions.

Connect with World Oil
Connect with World Oil, the upstream industry's most trusted source of forecast data, industry trends, and insights into operational and technological advances.