The European Union is considering setting a $100 a barrel price cap on Russian diesel to limit the potential fallout on global supply after the EU ban on Russian refined products comes into effect on February 5, EU officials have told Reuters.
The EU will ban—effective February 5—seaborne imports of Russian refined oil products, and around 1 million barrels per day (bpd) of Russian diesel, naphtha, and other fuels need to find a home elsewhere if Moscow wants to continue getting money for those products.
An EU proposal calls for capping the price of Russian diesel sold to third countries at $100 per barrel. Similarly to the price cap on Russian crude, buyers outside the EU will continue to have access to Western insurance and financing for cargoes if they comply with the price cap. The proposal also includes setting a price cap of $45 per barrel for discounted products such as fuel oil.
The EU has sent the proposal to the governments of the EU member states and their representatives are expected to discuss the issue on Friday afternoon.
Setting price caps on Russian refined products have been “more complicated” than the $60 price cap on crude oil, U.S. Secretary of the Treasury Janet Yellen said last week.
“It’s more complicated, but we’ve been working hard to figure out how to achieve the same objectives,” Yellen said, as carried by Reuters.
The objectives of the price caps are to reduce Putin’s revenues from energy exports and, at the same time, keep global oil markets sufficiently supplied.
The European Union is buying more diesel from the United States and Saudi Arabia in preparation for the EU ban, yet Europe still remains the biggest buyer of Russian diesel.
In December, for example, Russia’s diesel exports surged to a multi-year high of 1.2 million bpd, of which 720,000 bpd was destined for the EU, according to estimates in the latest Oil Market Report by the International Energy Agency (IEA).
After February 5, the diesel markets and the product flows globally are set to change, with Russia looking to place its refined products elsewhere and Europe hauling in more supply from the United States, the Middle East, and Asia, analysts say.
By Tsvetana Paraskova for Oilprice.com
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