US: Russian Oil Price Cap Must Remove Risk Premium From Market

The price cap that the G7 countries are planning to introduce on Russian oil should remove the risk premium from the oil market. A US Treasury Department official said that the extra premium on oil prices resulted from Russia’s invasion of Ukraine at a press conference.

 

The price cap, with which the big seven industrialized countries want to punish Moscow for its war in Ukraine, should be set above the fixed costs of Russia’s oil production, according to the official. In addition, historical oil prices must also be taken into account.

The introduction of a maximum price, on which the G7 countries have agreed, should ensure that Russia earns less from the sale of fossil fuels. The European Union is also considering introducing price ceilings on Russian oil and gas. Russia has already warned against selling oil, gas and other fuel products to countries that want to impose maximum prices for Russian raw materials.

Prices on the international oil market are now below the level before the Russian invasion of Ukraine. Oil prices have been falling for some time on concerns about a recession due to high inflation and strong interest rate hikes from central banks. Furthermore, the strict corona lockdowns in China are slowing down the oil demand.

Despite the fall in oil prices, the United States fears that oil prices will rise again later this year when the European ban on Russian oil comes into effect in December. In addition, a large build-up of US oil reserves could indicate that the US may then bring more oil from its stocks to market to push prices down.

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