EU $60 cap on Russian oil

[Graybeard]

Please don't turn this into a political thread, that is not my intent.

Just what is the EU's cap on Russian oil supposed to do?

The European Union on Friday agreed on a $60 per barrel price cap on Russian seaborne crude oil, after holdout Poland gave its support, paving the way for formal approval over the weekend.

Does this mean the EU nations will only pay $60 per barrel for Russian oil? This seems ridiculous, how can the EU tell Russia what the EU will pay for Russia's oil? Say $80 oil is the price per barrel, say Russia is selling their oil under the going price and let's say the price they want is $70 a barrel. Russia is going to tell the EU it's $70 not $60. I guess this would mean the EU nations won't buy Russian oil unless Russia reduces it from $70 to $60? I doubt that will happen.

Maybe I'm missing something, this seems like a meaningless exercise.

 

[Graybeard]

65 views but no one has a reply? This is coming on 12/4 IIRC.

 

[aja8888]

Oilprice.com has some articles on it. No sense repeating the news. Putin says he won't sell the oil (from tankers) at a capped price.

 

[njhowie]

US joins EU and G7 to cap Russian oil prices at $60/barrel

 

[Graybeard]

Thanks for the Yahoo! link. I follow financial matters daily but I somehow missed whatever explanation might have been mentioned on what the price cap was intended to accomplish. I knew there had to more to this than I knew cuz what I knew just did not make sense.

 

[street]

That is an interesting move. I can see where it could work for consumer benefit but would hope the cap would not backfire on us.

Not sure how soon all involved would see the benefits from this action.

 

[youbet]

I can see where it could work for consumer benefit but would hope the cap would not backfire on us.

I've been noodling this situation and it does seem there is plenty of room for a "backfire" situation. Allocation of scarce resources other than by price has seldom been efficient or successful.

If the market price of oil is at, say, $80, I wonder who will be getting Russian oil for $60?

 

[aja8888]

If the market price of oil is at, say, $80, I wonder who will be getting Russian oil for $60?

Putin will sell it to anyone who pays market price. He said he won't sell it at the capped $60/bbl price.

 

[street]

I've been noodling this situation and it does seem there is plenty of room for a "backfire" situation. Allocation of scarce resources other than by price has seldom been efficient or successful.

If the market price of oil is at, say, $80, I wonder who will be getting Russian oil for $60?

Yes, that is true and a real scenario. I'm always concerned when fire is fought with fire. I don't believe in most cases anyone wins.

 

[Music Lover]

The buyer doesn't get to set the price.

 

[youbet]

The buyer doesn't get to set the price.

But the buyer does get to participate in setting the price, directly or indirectly.

 

[latexman]

The buyer doesn't get to set the price.

Neither does the seller. “Supply and demand” both set the price.

 

[Montecfo]

Latexman has it right. It is a buying cartel. It can work if all buyers are in it.

But China and India are already buying Russian oil at a discount. Are they paying less than 60?

If so this helps Putin.

I am dubious that this will put much pressure on him.

 

[6miths]

My understanding is that Russia's price per barrel to market is under $20. So do I shut my industry down and let other oil producing nations benefit from the increased price that results from my oil being off the market or do I take the $40 per barrel profit and keep my workers working and an income stream open. i'd be nervous about leaving my oil in the ground. It does depend on solidarity on the part of buyers. And no one has been claiming that Putin is acting rationally and the Russian people are certainly used to hardships but there must be a limit.

 

[Koolau]

Please don't turn this into a political thread, that is not my intent.

Just what is the EU's cap on Russian oil supposed to do?



Does this mean the EU nations will only pay $60 per barrel for Russian oil? This seems ridiculous, how can the EU tell Russia what the EU will pay for Russia's oil? Say $80 oil is the price per barrel, say Russia is selling their oil under the going price and let's say the price they want is $70 a barrel. Russia is going to tell the EU it's $70 not $60. I guess this would mean the EU nations won't buy Russian oil unless Russia reduces it from $70 to $60? I doubt that will happen.

Maybe I'm missing something, this seems like a meaningless exercise.

Lots of issues involved here and, unfortunately, keeping politics out of it isn't easy. The EU sets policies for its member states - and Poland sometimes gets the short end of the stick. Poland has more coal than any other EU member other than Germany. But coal issues beginning 20 years ago (how much they are allowed to mine/sell and to whom, for instance) and now so called $60 oil cap on Russian oil - which in effect means you can't buy oil from Russia - even if it's cheaper (albeit more than $60.) It would be like the USA saying Georgia (the one between SC and FL) is not allowed to pay more than $60 for Canadian oil. YMMV and returning you now.

Returning you now

 

[aja8888]

I'll just state this again. This is all we know. The market will set the price unless Putin decides to keep the oil floating in his tankers and shut down onshore production a bit.

Putin will sell it to anyone who pays market price. He said he won't sell it at the capped $60/bbl price.

 

[ERD50]

The buyer doesn't get to set the price.

Actually, both the buyer and the seller are free to set any price they want.

Whether that leads to an actual transaction or not is another matter!

I have a worn down #2 pencil stub on my desk. I'm putting it up for sale for $1M USD. PM me if interested. See how easy that was?

-ERD50

 

[ncbill]

China and India are buying at massive discounts...probably $60 or less per bbl already.

Complying with the price cap allows Russia to sell w/o restrictions, which is easier for them logistically than what they're being forced to do now: buying up old clapped-out tankers to try and get around the cap.

 

[Montecfo]

China and India are buying at massive discounts...probably $60 or less per bbl already.

Complying with the price cap allows Russia to sell w/o restrictions, which is easier for them logistically than what they're being forced to do now: buying up old clapped-out tankers to try and get around the cap.

If you are right then the cap helps Putin, which I suspected.

 

[Koolau]

If you are right then the cap helps Putin, which I suspected.

One thing seems certain. If Putin sells at $60 - he's still making money - and a lot of it - which he seems to need right now. YMMV

 

[street]

Yes, I had a bad feeling about dictating/cap for Russia. I believe in the long haul we will suffer the ill effects of that decision.

 

[Sunset]

So Russia, could now flood the oil market at $60 bbl , driving down the "real" price of oil. Sucking away the extra profits other oil companies are making.

This explains to me why OPEC has not increased it's production, no sense in selling oil cheap, as folks will buy it at higher prices once all the $60 oil is bought.

 

[ncbill]

Prices are drifting higher, as expected...I bet we're over $90/bbl soon enough.

I wouldn't be surprised if it goes back to over $100/bbl, at least until the next recession hits.

 

[ERD50]

So Russia, could now flood the oil market at $60 bbl , driving down the "real" price of oil. Sucking away the extra profits other oil companies are making.

This explains to me why OPEC has not increased it's production, no sense in selling oil cheap, as folks will buy it at higher prices once all the $60 oil is bought.

But if OPEC is up around $80 (higher now?), aren't there enough other markets for Russia to sell to? If OPEC is set at $80, Russia could sell to the open market @ $79. Who (other than EU, and now US?) wouldn't buy Russia's $79 oil (adjusted for any quality differences)?

As youbet said early on:

Allocation of scarce resources other than by price has seldom been efficient or successful.

-ERD50

 

[Montecfo]

But if OPEC is up around $80 (higher now?), aren't there enough other markets for Russia to sell to? If OPEC is set at $80, Russia could sell to the open market @ $79. Who (other than EU, and now US?) wouldn't buy Russia's $79 oil (adjusted for any quality differences)?

As youbet said early on:

-ERD50

Problem is they need tankers and insurance to deliver oil to buyers. EU and US allies are not providing that for deliveries priced higher than $60, per the cap. So Russia has to use a "shadow fleet" of aging tankers, which makes deliveries slow and inefficient.

Analysts are attributing today's modest price rise to loosening of covid restrictions in China