EU Agrees to $100 Price Cap on Russian Diesel as Import Ban Looms

By Jorge Valero, Alberto Nardelli and Ewa Krukowska (Bloomberg) —

European Union member states agreed to impose a cap of $100 per barrel on sales of Russian diesel to third countries as part of an effort to limit Moscow’s revenues, according to people familiar with matter. 

The price cap mechanism is tied to an EU ban on seaborne imports of Russian refined fuels that kicks in Sunday. The bloc agreed to the $100 level for petroleum products that trade at a premium, including diesel. It backed a cap of $45 for those that sell at a discount, such as fuel oil and some types of naphtha.

EU diplomats also agreed to delay a review of the $60 price cap for Russian crude oil until March, when they’ll begin regular two-month reviews of all the cap levels, the people said. Setting prices requires unanimous agreement among the EU, as well as signoff from the Group of Seven.

Explainer: EU’s Embargo and Price Cap on Russian Oil Products

The new caps are being negotiated in coordination with the G-7, which has signaled that it can accept the $100 price for diesel. Officials have expressed concerns that setting too low a level risks causing price spikes or supply glitches in Europe.

The provision includes a grace period until April for cargoes loaded before the cap was agreed. The price cap measures will ban companies from providing shipping and services needed to transport the goods, such as insurance, unless the oils and fuels are purchased below the agreed price thresholds.

Benchmark diesel futures in northwest Europe have fallen in recent days, settling at $845.50 a ton, or $113 per barrel, on Thursday, though remain well above seasonal norms. But Russian diesel was priced at a significant discount earlier this week — about $90 — according to a calculation by Bloomberg based on data provided by Argus Media Ltd. 

Price caps of $100 and $45 a barrel “would not severely impact Russian refiners,” consultancy Wood Mackenzie Ltd said earlier this week.

Still, the consultancy expects Russian crude runs to be about 800,000 barrels a day lower this quarter than the previous one, and that the country’s diesel exports will drop by about 200,000 a day, all driven by the EU import bans. 

–With assistance from Jack Wittels.

© 2023 Bloomberg L.P.

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