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The G7 group’s price-capping measures taken to restrict Russia’s oil revenues will not target OPEC, a United States Treasury official told Reuters on Wednesday, although the gesture may do little to tamp down the animosity between the United States and OPEC.
The United States communicated this fact to OPEC to reassure them that any price-capping action wouldn’t be replicated in response to OPEC’s production cuts.
Tensions have grown between the United States and OPEC—particularly Saudi Arabia—since the most recent OPEC+ meeting, where the group decided to cut production targets by 2 million bpd, despite intense lobbying by the United States to delay any production cuts.
Saudi Arabia said that the actual OPEC+ production cuts for November would come in somewhere near 1 million bpd, with some members already underproducing the new target. The United States have claimed that the production cut would further line Russia’s pockets with oil money by driving the price of oil upward.
Although prices did rally following the OPEC+ meeting, they have since come back down. But tensions between Saudi Arabia and the United States have not.
The G7 agreed to a price cap in September, with the EU agreeing in October. The details of a price cap still need to be hashed out, and the G7 invited all countries to provide input on the design of the price cap, looking to have “a broad coalition in order to maximise effectiveness and urge all countries that still seek to import Russian oil and petroleum products to commit to doing so only at prices at or below the price cap.”
Bloomberg suggested that White House officials were concerned that a price cap on Russian crude oil could lead to a rise in crude oil prices after the OPEC+ decision, which increased oil market volatility.
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.
Cases in point are abound. Suffice to mention two cases: the former President Trump walking away from the Iran nuclear deal which the UN Security Council has unanimously approved and the US not coming to the defence of Saudi Arabia after the attack by the Hauthis rebels of Yemen on the Saudi pumping station of Abquiq which destroyed 50% of Saudi oil production in September 2019.
At a time when the United States has been accusing OPEC+ falsely with so-called cartel-like activities and limiting supplies and fixing prices and also hinting about invoking the NOPEC bill to sue OPEC+ and its members under its anti-trust laws, what the US and the G7 are proposing to do by capping the price of Russian crude is absolutely cartel-like action aimed at interfering with the free movements of oil prices.
Still, a price cap is doomed to fail miserably because Russia will kill it by immediately halting its crude exports to any country implementing it. Were a cap to be imposed, we could expect crude prices to surge with Brent headed towards $100-$110 a barrel before the end of the year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert