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U.S. Warns EU Members Against Setting Oil Price Cap Too Low

The United States has urged caution in the European Union’s discussions of a price cap on Russian crude, saying that the lower prices that have been cited in recent days may be misleading.

Per a Reuters report, an unnamed U.S. official said that the price of $52 per barrel of Urals crude - Russia’s flagship blend - does not reflect the overall level at which Russian oil has been trading this year.

The official then went on to explain that over the past two months Urals crude had been trading at a discount of between $23 and $17 to Brent crude, meaning its price was higher than $52 per barrel.

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Urals slipped to $52 a barrel last week, as Brent, WTI, and the other benchmarks also slid down on renewed concerns about Chinese oil demand.

The warning, however, may be interpreted as one directed towards three European Union members that insist on setting the cap much lower than the $65-$70 per barrel proposed by Washington.

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Poland, Estonia, and Lithuania want the price for Russian crude to be capped at about $20 to $30 per barrel. That price point will hardly find any support among the rest of the European Union as it is Russia's production cost for crude.

If the EU does not reach an agreement on the price cap, it will put into effect an embargo on all Russian maritime imports of crude from next Monday. This appears not to be what Washington wants because it would shrink the availability of Russian oil on global markets, and lead to higher prices.

Even if the EU agrees on the cap, the danger of lower oil supply remains and could even increase because Russia has stated it will not sell oil to countries enforcing the price cap.

By Irina Slav for Oilprice.com

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