The United States and its allies are hoping to establish the price level at which Russian crude oil will be capped, people familiar with the talks told the Wall Street Journal on Tuesday.
Officials are talking about setting the price at which Russia's crude oil will be capped at $60 per barrel. The group will meet on Wednesday to try to come to some agreement on prices.
The G7 plan to cap the price of Russian crude oil goes into effect on December 5, and the EU will ban Russian crude oil imports from the same date.
The US-led price capping mechanism of the G7 and the outright ban from the EU has the potential to disrupt 2.5 million bpd or more of seaborne crude oil to Europe. Russia reaffirmed its threat this week that it would not supply any crude oil to nations that operate under this price cap, redirecting its crude oil to "market-oriented partners". According to Russian Deputy Prime Minister Alexander Novak, Russia could even reduce production in reaction to the price-capping strategy.
Last week, the G7 was scrambling ahead of the December 5 deadline that is approaching fast. The EU regulations necessary to navigate the post-December 5 oil markets still hadn't been drafted or finalized, pending the determination of the actual price level.
The price cap plan will hold all buyers within the group to purchase crude oil from Russia only if it can be purchased below a set minimum. The plan looks to restrict Russia's oil revenues while still allowing crude oil customers to source their oil from Russia.
A $60 price cap would be nearly $30 per barrel under the current Brent barrel price, translating into a fine discount for any crude buyer.
By Julianne Geiger for Oilprice.com
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Comments
It is also possible the OPEC+ will decide then to cut production to help foil the cap scheme by making the market tighter.
The losers in this gamble will be the G7 countries while the winners will be Russia, OPEC+, China, India,Turkey and oil traders.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert