The EU embargo on Russian crude oil and refined products will create huge uncertainties in the global oil and product markets in just a few weeks, according to the International Energy Agency (IEA).
The oil market is already feeling uncertainties stemming from a worsening economic outlook, the agency said in its Oil Market Report (OMR) on Tuesday, noting that China's weak economy, Europe's energy crisis, surging product cracks, and the strong U.S. dollar are all weighing heavily on consumption.
Amid signs of weakening oil demand growth, "The approaching EU embargoes on Russian crude and oil product imports and a ban on maritime services will add further pressure on global oil balances, and, in particular, on already exceptionally tight diesel markets," the IEA said.
"A proposed oil price cap may help alleviate tensions, yet a myriad of uncertainties and logistical challenges remain," said the agency.
The G7 group of the most industrialized nations and the EU are looking to introduce a price cap on Russian oil, aiming to reduce Vladimir Putin's oil revenues for his war chest. The allies will ban maritime transportation services for Russian oil unless the products are purchased at or below a certain price cap.
The U.S. and the G7 allies and Australia are currently working on setting the details of the price cap before the December 5 deadline, after which the EU embargo on imports of Russian crude oil by sea enters into force.
Reports emerged earlier this month that the G7 members had agreed to set a fixed price for Russian oil exports as a cap rather than a price set as a discount to a benchmark, Reuters reported, citing an unnamed source familiar with the discussions.
The price cap will likely benefit both China and India, two of the largest importers of Russian oil since sanctions came into effect.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More