US says Russian oil price cap should reflect historical prices and limit Putin's profits

US says Russian oil price cap should reflect historical prices and limit Putin’s profits

Liberian-flagged Aframax tanker Suvorovsky Prospect unloads fuel oil from Russia at the Matanzas terminal in Matanzas, Cuba July 16, 2022. REUTERS/Alexandre Meneghini/File Photo

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SINGAPORE/WASHINGTON, Sept 9 (Reuters) – The price cap the G7 countries want to impose on Russian oil to punish Moscow should be set at a fair market value less any risk premium resulting from its invasion of Ukraine, said a US Treasury Department official. reporters on Friday.

The Group of Seven is trying to find ways to limit Russia’s lucrative oil export earnings following its invasion of Ukraine in February. Several different countries have banned imports of Russian crude and fuel, but Moscow has managed to maintain revenue thanks to increased crude sales to Asia, particularly China and India.

The level of the price cap is unclear, and US and European officials have not specified a numerical range. However, extrapolation from recent US forecasts suggests it could be pegged at around $60 a barrel.

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The price must be set above the marginal production cost of Russian oil and take historical prices into consideration, said Elizabeth Rosenberg, U.S. Treasury Assistant Secretary for Terrorist Financing and Financial Crimes.

“There are several key data points that we are looking at and how pricing should ultimately be set and that includes the marginal cost of producing Russian oil,” Rosenberg said on a conference call for media in Asia.

“The ceiling price must be … in line or consistent with historical prices accepted by the Russian market.”

The G7 price cap plan agreed last week calls on participating countries to deny insurance, financing, brokerage and other services to oil cargoes priced above a price cap that has yet to be set. for crude and two petroleum products. Read more

That could imply a potential cap of around $60 a barrel, experts say, as Russian Urals crude, based on benchmark Brent futures, sold for between $50 and $70 a barrel. barrel in 2019. Russia exports around 8 million barrels of crude and fuel per day, making it the largest oil exporter in the world.

Russian government documents have identified a marginal cost of producing crude at $44 a barrel, although some Western officials believe it could be slightly lower.

US Treasury Secretary Janet Yellen and other Biden administration officials have traveled to oil-consuming countries to promote a mechanism that aims to cut Russia’s oil export revenue, the lifeblood of its war machine, without reducing the volumes of Russian shipments to world markets.

The strength of any price cap could rest on the participation of China and India, which have stepped up purchases of discounted Russian crude as others have banned Russian barrels.

Assistant Treasury Secretary Wally Adeyemo told Yahoo! News that India had agreed to continue discussions on whether to join, and Washington hoped China would also consider it. Read more

Russian President Vladimir Putin has said Moscow will halt shipments to countries that impose the price cap. Read more

The Brookings Institution said there was “a lot of well-justified skepticism” about the plan, noting it was unclear whether China would cooperate and Russia could always refuse to sell oil at a lower price. .

Rosenberg said the G7 countries – Britain, Canada, France, Germany, Italy, Japan and the United States – would work together in the coming weeks to determine the price cap and d other key implementation details.

She said service providers would not have to monitor price cap compliance themselves, but could rely on attestations from buyers and sellers, leaving enforcement to participating jurisdictions.

A European official said G7 members had not started formal price cap talks, although officials had “ideas” on what was possible.

“The idea is that you continue to incentivize Russian oil producers to export by guaranteeing a price in line with their cost of production with a small incentive,” the official said.

Putin said Russia was carrying out a “special military operation” in Ukraine to protect his country’s security against the expansion of NATO, the Western military alliance. Read more

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Reporting by Florence Tan in Singapore and David Lawder, Timothy Gardner, Andrea Shalal and Richa Naidu in Washington; Written by Timothy Gardner and David Lawder; Editing by David Gaffen, Heather Timmons, Christian Schmollinger, Tom Hogue and Marguerita Choy

Our standards: The Thomson Reuters Trust Principles.

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