Novak acknowledges difficulties arising from oil price ceiling

The introduction of a ceiling on prices for Russian oil led to difficulties in the form of a high discount on raw materials. This was stated by Deputy Prime Minister Alexander Novak during a meeting with Russian President Vladimir Putin.

“The main problem is the high discount as a result of the high level of freight costs. That is, the cost of freight has grown quite strongly due to the risks that carriers and counterparties experience regarding possible sanctions in accordance with the fact that they do not set a price ceiling,” he said.

Novak expressed hope that the situation would be temporary. “The discount should decrease over time, as we observed during 2022, when the discount grew strongly in March and April, then it began to gradually fall and halved,” Novak emphasized.

The day before, January 10, Bloomberg reportedthat Russian Urals oil on January 6 was sold at a price one and a half times lower than the established price ceiling – $ 37.8 / barrel. At the same time, benchmark Brent crude was trading at $78.57 that day.

After that, the Ministry of Energy admitted introduction of additional measures to counteract the price ceiling for Russian oil. In particular, they can be aimed at “limiting the possible discount” on Russian raw materials for deliveries abroad “up to the limits based on market prices.”

On December 3, 2022, the EU countries agreed on a price ceiling for Russian oil of $60 per barrel, which is expected to be reviewed every two months so that the ceiling level is 5% below the price of Urals. The restriction came into force on December 5, along with a ban on the supply of Russian oil by sea to the EU countries. For oil products, the restriction will come into effect on February 5. In addition to the EU countries, the G7 countries and Australia also joined the ceiling.

After that, on December 27, Russian President Vladimir Putin signed Decree on retaliatory measures to the oil price ceiling. According to the text of the document, a ban is introduced on the supply of Russian oil and oil products to foreign companies and individuals, if the contracts directly or indirectly provide for a cap price mechanism.