European Union members debated Wednesday whether to cap Russian crude at a price between $65 and $70 a barrel, said people familiar with the negotiations, a level that exceeds the price of Moscow's oil after a recent fall in global energy markets.
The U.S. and its G-7 allies are racing to finalize their flagship sanctions on Russian energy, which combine a ban on shipping, insuring and financing Moscow's oil with a loophole for trades where prices fall at or below a certain level. The sanctions are due to kick in for crude on Dec. 5.
- Oil benchmark Brent crude fell 2.6% Wednesday to $85.34 a barrel as monthslong negotiations entered the final furlong. Prices have been volatile in recent days after reports in The Wall Street Journal and elsewhere that the OPEC+ cartel had discussed an output increase.
- Reports that the sanctions and their enforcement wouldn't be as severe as expected also prompted the decline, traders said. They said that reduces the chances of Russian exports snarling up next month.
The cap on crude prices is still subject to negotiations. If it falls in the $65 to $70 a barrel range under discussion, it would lie above the price Russia fetches for its crude and fail to crimp Moscow's revenue immediately.
Prices for Russia's flagship crude, Urals, have fallen in recent days as Europe gears up to ban most imports of the fuel.
- Urals traded at $60.33 a barrel Tuesday when delivered into Rotterdam, according to S&P Global Commodity Insights. That price includes insurance, freight and other costs. The so-called FOB price, which excludes those elements and is the basis for the price cap, would be lower still.
"If the cap is set at that level I really don’t see how that could create problems for Russia," Simone Tagliapietra, a fellow at Bruegel, a Brussels-based think tank, said of a cap between $65 and $70. "I think anything beyond $60 will not be certainly meaningful, will certainly not harm Russia as we would like to."
U.S. and European officials reached a compromise in recent days that allows vessels found to breach the price cap to receive EU services after a 90-day ban, the Journal reported Tuesday. U.S. officials feared a previous EU plan to exclude such vessels in perpetuity would scare shipping companies from touching Russian oil.
That watering down will likely allow more Russian oil to reach the market and contributed to the pressure on prices Wednesday, traders said.
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