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The G7’s oil price cap may have went into effect on Monday, but Russia’s response is to consider putting a “price floor” under its crude oil exports, two officials familiar with Moscow’s plan told Bloomberg on Tuesday.
Russia had already said it would not ship crude oil to anyone playing along with the G7 oil price cap, and that it could even possibly respond by cutting oil production rather than ship its oil at too severe a discount, as dictated by the price cap.
The G7 price cap landed on $60 per barrel—above the level where Russian crude is currently shipping today. But that hasn’t stopped Russia from threatening to cut its oil production and creating a floor for its crude oil prices, or limiting the discount that Russian crude is trading to Brent.
The G7 price cap was created ostensibly to restrict Russia’s revenue from its crude oil sales, although capping its oil at $60 per barrel would surely fail in its mission. And if Russia were to restrict output in response to the price cap like it said it would, oil prices could climb higher, blunting even more any efforts to restrict Russia’s revenue as it continues what Russia refers to as its special military operation in Ukraine.
Russia has promised it would refuse to sell crude except at market price. What’s more, it said it would keep to that promise even if it means cutting production.
The EU and the G7 said they would review the cap every two months, with the first review in mid-January.
The current cap on crude prices will be followed in February by a price cap on Russia’s petroleum products, although that price has yet to be set.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.