Spot Prices for Russian Crude Oil Exceed G7 Oil Price Cap Scheme
This week, spot values for Russia’s key crude oil surpassed the $60-per-barrel threshold of the Group of Seven’s (G7) oil price cap scheme. The G7 implemented the mechanism in December 2024 to keep Russian flows in the market while limiting revenue for the Kremlin’s war coffers. The increase in Russian crude oil prices was attributed to underlying hikes in global oil prices as Moscow and Riyadh tighten supplies.
Under the G7 oil price cap scheme, European Union imports of Moscow’s crude were banned, and Western shipping and insurance providers can only offer services to non-G7 buyers of Russian crude if the price remains below $60 per barrel. However, this week, prices for Russia’s main export crude, the heavy-sulfur “sour” Urals, exceeded the $60-per-barrel threshold for the first time since the implementation of the price cap mechanism.
According to assessments from commodities pricing agency Argus, Urals prices reached $60.18 and $60.78 per barrel for Primorsk and Novorossiysk-loaded cargoes, respectively. S&P Global Platts valued Primorsk cargoes at $60.32 per barrel and Novorossiysk Urals crude at $60.26 per barrel. Several crude oil traders noted that the spot Urals price increase is due to underlying hikes in global oil prices.
Factors contributing to the surge in oil prices include disruptions in Libya, leading to sustained levels above $80 per barrel in Ice Brent futures with September expiry. Additionally, the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency forecast surging demand in the second half of the year. Furthermore, some members of the OPEC+ group are implementing voluntary production cuts, and Saudi Arabia and Russia announced additional reductions in exports.
The rise in Urals values can also be attributed to an ongoing impasse between Turkey and Iraq, which is blocking some 450,000 barrels per day of sour Kurdish crude flow via Ceyhan, thus boosting sour crude values.
The increase in Russian crude oil prices has led to concerns about potential changes to the G7 scheme price ceiling. However, G7 regulators are expected to wait and see if this is a trend before making any adjustments. It is speculated that this breach may prompt Washington to consider another crude release from strategic petroleum reserves (SPR) to mitigate price hikes.
While Russian crude and refined oil exports are already under pressure, especially with a loss of 600,000 barrels per day in June, Russian crude transport to key buyer India is largely insured by non-Western providers and carried on Russia’s own fleet. There may be potential changes in payment currency, such as switching from dollars to UAE dirhams.
Overall, the increase in spot prices for Russian crude oil reflects the tightening global oil supplies, disruptions in certain regions, and the impact of voluntary production cuts by OPEC+ members. This surge may lead to discussions within the G7 about potential adjustments to the oil price cap scheme and could prompt further actions from major oil-producing countries.