G7 price cap restrains Russian oil revenues but Kremlin still finding buyers
Price caps on Russian oil and gas have managed to drive down oil revenues and keep prices in check for consumers, experts have suggested, even though the country still has no shortage of buyers for its supplies.
Callum Macpherson, head of commodities at Investec, told Morning Wire the sanctions and cap mechanism unveiled by the G7 this year has achieved their aim of limiting oil revenues from Russia, without unduly inflating oil prices amid OPEC supply cuts.
He said: “The sanctions have not led to a significant curtailment in Russian output as the market has been able to reorganise itself to reroute trade flows to keep Russian crude in the market. Russia has had to accept a significant discount to achieve this. Had sanctions led to significant reductions in Russian output, oil prices could be very much higher than they are now.”
Ole Hansen, head of commodity strategy at Saxo Bank, added: “It has helped, not in the sense of forcing down exports, but in keeping the price in check. However, given the current global tightness Russia has no problem finding willing buyers.”
The G7 – which includes the UK – entered into a coalition with the European Union and Australia to set caps on the price of seaborne Russian oil products in February.
This has capped high-value Russian exports such as diesel and gasoline at $100 per barrel while lower-value products such as fuel oil are currently capped at $45 per barrel.
Research from the Centre for Research on Energy and Clean Air has forecast that the price cap on crude oil is costing Russia around £137m per day.
Last month, the Treasury reported that there was a 45 per cent plunge in Russian oil revenues over the first quarter of 2023, while the International Energy Agency has calculated a near £8bn loss over the first six months of trading this year.
However, China and India are both continuing to take large volumes of discounted Russian oil, ensuring revenues still remain higher than initially hoped from the sanctions.
China, the world’s biggest crude buyer, is now Russia’s biggest market, with pipeline and seaborne arrivals of 2.04m barrels per day (bpd) in July, according to data from Refinitiv, shared with news agency Reuters.
Overall the country imported 12.1m bpd of oil in July, the third consecutive month imports climbed above 12m.
India imported an estimated five-month high of 4.94m bpd from global markets in July, including 2.08m bpd of Russian crude.
With markets tightening from OPEC cuts, there is a chance this could be ramped up even further, as countries look for supplies lured in by discounted prices.