The US is actively working to achieve a price ceiling on Russian oil at any level of around 40-60 USD/barrel - Bloomberg reported on July 6, citing a source familiar with the issue.
President Joe Biden first raised the idea at the G7 summit last month.
The price cap has been imposed on Russian oil to punish the country for the conflict in Ukraine. The mechanism is designed so that Russian oil will not and cannot be purchased at prices higher than the price cap.
However, oil analysts are skeptical about the effectiveness of the price ceiling, while Russia warned that any such effort would actually spike oil prices.
Biden administration officials are having many weekly meetings on the topic of price ceilings, Trying to make it a reality, one official told Bloomberg.
Washington is also exploring implementation tools such as sanctioning shipping companies that transport oil at higher prices, as well as sanctioning banks and financial institutions to facilitate sales. This will be the first time the US and its allies have used quarter-level sanctions, in addition to the embargoes they impose directly on Russia.
Senior US officials have discussed limiting Russian oil exports for weeks, but energy experts believe it could be implemented.
These mechanisms can only work if they attract all the key producers and especially all the key consumers to do it, independent oil analyst Neil Atkinson told CNBC.
They havent thought carefully, they havent spoken to India and China, Amrita Sen of Energy Aspects told CNBC, referring to Russias two largest oil importers at the moment. We really think they will agree with this? And do we really think that Russia will accept this and not retaliate? I think the ceiling proposal seems like a very, very good theoretical concept, but it will not work in practice.
When the Japanese government proposed limiting Russian oil prices earlier this week, Deputy Chairman of the Security Council, former Russian President Dmitry Medvedev warned on social media that this could effectively push oil prices to $300-400%.
President Joe Biden and other G7 leaders have made it clear that the imposition of price ceilings is to cut funding for Russia's military campaign in Ukraine, not to help their citizens ease the burden on gasoline prices.
Citigroup warned that if a global recession affects demand, oil prices could fall to $65/barrel by the end of 2022 and even to a low of $45 in 2023. However, Brent oil price on July 6 was 104 USD/barrel, while WTI oil was trading at over 100 USD.
For oil, historical evidence shows that oil demand has only declined during the worst global recessions. But oil prices have fallen in all of the recessions to near- maxillofacial costs, Citigroup analysts said.
Disruption in potential oil production in Norway - where foreign workers have started a strike - has increased concerns about global supply. The strike is expected to reduce the output of 89,000 barrels of oil per day. In another development, Saudi Arabia has raised crude oil prices for Asian buyers in August to near-record levels amid tight supply.
