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Oil prices increase as cap on Russian crude takes effect

Tuesday, December 6th, 2022 10:00 | By
Oil prices increase as cap on Russian crude takes effect

SUPPLIES:  Oil prices have risen amid concerns that a new cap on the price of Russian crude could disrupt global supplies in the coming months. A separate decision by major oil-producing countries to keep cutting how much they produce to prop up prices has also fuelled the rise.

The price of Brent crude oil rose by almost 2 per cent on Monday to $87.25 a barrel.

But this is still well below the highs seen after Russia invaded Ukraine. Higher oil prices tend to push up petrol prices and the cost of living which, in the UK, is rising at its fastest pace in 41 years.

On Monday, the G7 group of major economies implemented a cap on the price of Russian oil at $60 a barrel to “prevent Russia from profiting from its war of aggression against Ukraine”.

It will stop any Russian crude sold for more than that price from being shipped using G7 and EU tankers, insurance companies and credit institutions. Many major global shipping and insurance companies are based within the G7. However, Russia - which is the world’s second-biggest producer of crude oil - has said it will not accept the price cap and threatened to stop exporting oil to countries adopting the measures.

Jorge Leon, senior vice-president at Norwegian energy consultancy Rystad Energy, told the BBC’s Today programme that oil prices could increase as a result.

“Russia has been very clear that they will not sell crude [oil] to anybody signing up to the price cap,” he said.

“So probably what’s going to happen is that we will see some disruptions in the coming months and therefore probably oil prices are going to start increasing again in the coming weeks.”At the same time, on Sunday the group of top oil-producing countries known as Opec+ said it would stick to its policy of reducing output to prop up global prices.

Opec+ is made up of 23 oil-exporting countries, including Russia, who regularly meet to decide how much crude oil to sell on the world market.

In the wake of Russia’s invasion of Ukraine, global oil prices soared to more than $120 a barrel amid concerns about a shortfall in global supplies from Russia.

But they have fallen sharply since then as the global economy slows down and countries use less oil.                 

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