An impending price cap on Russian oil by G7 nations is expected to divert trade to smaller firms, the chief executive of global energy and commodity trader Vitol, Russell Hardy, said on Wednesday.
Bigger corporates such as Western banks and insurance companies will not take part in the trades unless there is complete clarity that the price of the contract is lower than the price cap, Hardy said at the FT Commodities Asia Summit in Singapore.
So the challenge of redirecting surplus Russian oil that normally goes into Europe will be overseen by smaller firms that do not operate in G7 countries, he said. The European Union wants to have regulations in place in time for the proposed introduction of the cap on Dec. 5.
Since regulations for the price cap will affect the provision of financial services for the trade, Hardy thinks one alternative trading location will be Dubai, where firms can operate without being bound by the price cap.
The price cap will possibly be divided into three parts, including high-value Russian products, low-value Russian products, and crude oil, he added. The G7 group is made up of Britain, France, Canada, Germany, Japan, Italy, and the United States plus the European Union.
Oil Price Outlook
Hardy said oil prices would still gravitate towards the downside until early next year, as some customers had already secured their current requirements.
“I think there’s probably a little bit of price pressure in the short term,” because some buyers had piled up their inventories in case of supply interruptions, he said.
Prices were expected to move higher in the second half of next year amid a rally in demand, he added. Hardy projected that Russia’s crude oil could be priced at around $60 a barrel and its products in a range of $300 to $700 a tonne following the enforcement of the price cap.
Buy Crypto NowMeanwhile, the gas market could still encounter further volatility this winter.
“People are saying (that for) this winter, we can afford to relax a little bit. I think it’s possibly too early for that.”
There was still potential for supply disruptions and issues with Russian pipelines, along with uncertainty around the weather, he said.
