© Reuters Russian official: Price caps have limited impact on oil capacity, won’t hurt economy
December 8 Financial Associated Press News (Edited by Xia Junxiong)Russia’s Energy Ministry officials have dismissed fears that the Group of Seven’s (G7) price cap on Russian oil, which went into effect this week, could destabilize Russia’s oil-producing capacity.
Russian First Deputy Energy Minister Pavel Sorokin issued a statement saying, “According to the corresponding market principles, most markets can buy our assets.” Sorokin added that the fluctuations in oil production will not be severe, will not be higher than the spring fluctuation value.
After many rounds of difficult negotiations, the EU and the G7 have set the price of Russian oil at $60 a barrel. Oil watchers fear the mechanism could force Russia to curb supply, even though most of the crude Russia is currently selling is below $60 a barrel.
Officials in Russia, which currently accounts for about 10% of global oil production capacity, have repeatedly said they would not sell oil to any country with a price cap mechanism. If Russia sticks to this stance, it may be forced to cut production.
After the eruption of the Russia-Ukraine conflict, Western countries imposed the toughest international sanctions on Russia ever, with the energy industry, which is the backbone of the Russian economy, the main target. Affected by Western sanctions and the willful avoidance of buyers, Russia’s oil production capacity has fluctuated this year.
Industry data shows that Russia’s oil production capacity was about 10.05 million barrels per day in April this year, down from 11.08 million barrels per day in February.
The International Energy Agency (IEA) predicts that Russia may struggle to find alternative markets after the European Union ban on Russian oil comes into force. The European Union has banned the import of Russian crude oil since December 5, and has banned the import of Russian petroleum products from February 5 next year.
The IEA predicted last month that by the end of March next year, Russia’s oil production could decline by nearly 2 million barrels per day from pre-war levels, and that production will average just 9.6 million barrels a day next year.
Russia’s central bank warned this week that price caps and a European ban would be a new shock that would significantly reduce activity in the Russian economy.
Sorokin disagreed with the central bank’s report, saying the price cap would have little impact on the economy.
Sorokin said, “Economic downturn risks may increase volatility, but the global market is not oversupplied for oil and there are clear shortages of some petroleum products such as diesel, these factors are supporting oil prices.”
