Oil price is expected to reach $200 after a group of rich nations under the aegis of the G7 announces a plan to cap the price of Russian crude.
G7 is an inter-governmental political forum of the seven-largest free-market economies – Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
The measure was proposed as one way to punish Russia for its invasion of Ukraine.
However, the imposition of a price cap on Russian oil could hit the country’s crude exports, driving the oil price cost the world over, from around $114- $117 per barrel to over $200 a barrel.
Bjarne Schieldrop SEB Group chief commodities analyst made this projection in a note published on Tuesday, 29 June.
According to him, in no uncertain terms that the G7’s price capping proposal was a “recipe for disaster” given the current stress that the oil market is under.
“The G7 countries are today actually praying that Russian oil exports will not go down. Because if they do then the oil price will spike from current lazy $117/bl to instead above $200/bl,” he said.
The G7 nation decision is coming as Organization of the Petroleum Exporting Countries and its allies agreed on Thursday to boost production by 648,000 bpd in August, a move that could potentially blunt the impact of restrictions on Russian output.
The Joint Ministerial Monitoring Committee meeting (JMMC), which was held in Vienna time, was followed by the full OPEC+ ministerial meeting.
The latter was not expected to offer any surprise, with the majority of analysts predicting that the group would rubberstamp the quota increase that it had previously set for August of 648,000 bpd.
It was one of the critical items to be discussed at this week’s G7 meeting as the group tries to find creative ways to lower energy prices for themselves and maintain adequate crude supplies from Russia—while simultaneously punishing Russia in what many see as an impossible task.
Brent, Nigeria’s crude benchmark was at $116.1 per barrel on Thursday, June 30, 2022. While WTI and Murban crude are at $109.7 and $119 respectively.
Janet Yellen, Treasury Secretary, US, continued to put pressure on European countries to support a price cap.
On Tuesday, Yellen released a statement saying the Treasury Department will work expeditiously with G7 countries, and other global allies and partners, to advance this effort.
She said: “Our united response to Putin’s war of aggression has already imposed historic costs on Russia’s economy and has made it harder for it to wage war against Ukraine.
“By working together to limit the price of Russian oil, we will further strengthen the existing sanctions imposed by the G7 and our partners to make sure that Putin will not be able to profit from the higher global energy costs that have resulted from his invasion.”
Schieldrop, on the other hand, said the plan appears “neat on paper, but it sounds like a recipe for disaster right now,” given the strong demand for crude oil and low supplies that have given Russia a market advantage.
The analyst said: “Russia could choose not to sell the oil at a capped price, resulting in a drop in Russian output of up to 2 million barrels per day.”
According to Kommersant sources, Russia’s crude and condensate production increased by 5 percent in June to 10.7 million bpd, including between 800,000 and 900,000 bpd of condensate, which is not included in the OPEC+ agreement.
But Russia’s oil exports have slipped 3.3 percent in June with the rise of domestic refining demand.
Alexander Novak, Russian Deputy Prime Minister, said Russia would raise its production again in July.