On the consequences of introducing an oil price ceiling

Alexey Belogoryev, Deputy Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Rambler/Finance on the short-term effect of introducing a “price ceiling” on Russian oil and on the possible “joining” of India to this “ceiling”.

According to him, the current level of the price ceiling should not affect the sales of Russian Urals oil, but Russian companies will have to redirect supplies of the more expensive ESPO grade.

“Given that the current price ceiling is approximately equal or, according to some estimates, significantly higher than the average market price for the sale of Russian Urals oil, nothing will apparently change for Russian suppliers in the coming weeks. As well as for European companies involved in insurance and cargo transportation. No one obliges companies to fix and adhere to a price ceiling anywhere. It's just that counterparties of Russian companies in Europe either conclude deals with them for freight or insurance, or do not conclude them, based on their own considerations, including the price ceiling,” the expert noted.

“Further dynamics will depend on how much the price ceiling will correspond to market prices. As long as it corresponds, everyone pretends that they work as they did, that nothing fundamentally changes. But if the price ceiling at some point becomes noticeably lower than the market price on Urals, then all the risks that have been discussed in recent months will arise: that Russian companies will begin to sharply reduce supplies if they are not satisfied with the price offered by buyers," the source said.