Russian Urals, the nation’s largest crude oil export, is trading at roughly $38 a barrel, well below the $60 price cap. But to oil historian Gregory Brew, the price reflects a softening global market, more than the impact of sanctions. “Softer market conditions have made the [price] cap somewhat moot,” he told Insider. Loading Something is loading.
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Over a month after the European Union and G7 imposed a $60 price cap on Russian oil, the country’s Urals blend is currently trading at about $38 a barrel. But the steep discount has more to do with China than sanctions, according to oil historian and Yale postdoctoral fellow Gregory Brew.
Before Vladimir Putin ordered the invasion of Ukraine last February, Russia stood as the world’s second largest crude exporter. Over the past year, however, many nations including the US have either imposed sanctions or shunned business with Moscow to penalize the nation for its aggression.
But in Brew’s view, the key variable behind cheap Russian oil is China.
“Since the war, we’ve generally seen Urals go for less, so this isn’t a surprise,” Brew told Insider. “The current drop reflects softer conditions on the market overall. There’s uncertainty with the global economy and with China’s zero-COVID policies.”
Brent crude, the international benchmark, is currently hovering just below $80 a barrel.
Brew noted that this remains a demand-driven story, as opposed to one centered on the West’s reactions to Russia’s invasion of Ukraine.
It isn’t about what Russia can produce or how badly the West can crimp Moscow’s revenue, he said, but rather about the global market Russia is operating in, which hinges on China’s reopening plans. Whether China sees fuel demand come roaring back will hold the biggest sway over prices for Russian oil.
Meanwhile, Russia has refused to formally abide by the price cap mechanism and has threatened to retaliate, such as by slashing oil output. UBS analysts have warned that oil prices could spike above $100 a barrel this year, but so far that has yet to materialize given that demand remains subdued largely in China.
“Softer market conditions have made the [price] cap somewhat moot,” Brew said. “The market is somewhat oversupplied, and to say this is the result of the cap is a bit hard to argue.”