Russia’s Answer To The Oil Price Cap? An Oil Price Floor

Key Insights

• Russia wants to set a minimum price or a maximum discount for its oil exports. 
• Russia also plans to ban the sales of oil to countries that participate in the price cap scheme. 
• Oil markets do not believe that Russian oil exports would take a strong hit.

Russia Plans To Set A Price Floor For Its Oil Exports

On December 5, G7 countries imposed a $60 price cap on Russian oil. This price cap has not had any material impact on the oil market in recent days as oil traders focused on global recession risks.

Meanwhile, Russia is working on its response to the price cap. Previously, Russia said that it would not supply oil to countries that participate in the price cap scheme.

According to a recent Bloomberg report, Russia plans to set a price floor for its oil exports. Russia is choosing between two options. The country may set a fixed minimum price for its oil, or it may set a maximum discount to international benchmarks. Most likely, Brent oil will be used as benchmark.

The minimum price and the maximum discount are expected to be revised on a regular basis. G7 countries have also agreed to revise their price cap scheme regularly.

Russia also plans to ban sales of oil to countries that have imposed the price cap mechanism. According to recent reports, Russia plans to come up with the new law by the end of this year.

The Real Picture Will Be Visible At The Start Of 2023

At this point, it’s too early to tell whether the oil price cap scheme or Russia’s oil price floor idea will work.

Oil prices are currently moving lower as traders are worried about a potential global recession. Russian oil is trading at a discount to global benchmarks, and its oil is selling at a price close or below the $60 level.

In this light, it remains to be seen whether oil markets will feel the impact of the recent developments in the near term.

Russia’s idea to ban sales of oil to the countries that participate in the oil price scheme may also have limited impact. Russia may sell oil to traders in India or China, which could then sell it to consumers in the European Union.

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