U.S. Price Cap Fails: Oil Prices Soar 15%, India Buys Despite Pressure
01, Price Cap Bankruptcy
In early December, Europe began a comprehensive ban on the import of Russian crude oil, and at the same time, the price cap led by the United States officially came into effect.
On December 1st, the WTI crude oil price reached a peak of $83, but then it fell continuously until December 9th, when the lowest price dropped to $70.08 per barrel.
At that time, the trend of oil prices seemed to indicate that the price cap was effective, with international crude oil futures prices falling towards the limit set by the United States.
However, unexpectedly, starting from December 12th, international crude oil prices experienced a rapid rebound, and have so far risen to $81.4, about to return to the prices at the beginning of December. As shown in the figure below.
The trend of Brent crude oil prices is also very similar, with the highest at the beginning of December at $89.37, and the lowest approaching the $75 mark, but it has now rebounded to $86.8, with a rebound amplitude of 15.6%.
It seems that the price cap led by the United States and Western countries is about to fail.
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If we further study the specific situations that have occurred and are about to occur after the price cap, we can even conclude that the price cap may bring about consequences that Western countries do not wish to see.
02, Opportunity Knocks
Western countries have been strictly limiting the price of Russian crude oil exports and are constantly looking for ways to do so.This time's price cap order requires participating countries not to import crude oil from Russia at a price higher than $60 per barrel.
For countries outside the price cap alliance, if the price of crude oil purchased from Russia exceeds $60 per barrel, they will not be able to obtain maritime, financial, and other related oil trade services provided by Western countries.
Since Western countries have almost monopolized financial and maritime services related to oil trade in the past, it seems that other countries have no choice but to comply with the price cap order.
However, in reality, this price cap order has provided a rare opportunity for the development of related service industries in various countries.
Taking the insurance services required for crude oil maritime transport as an example, in the past, it was often the claims services provided by a European insurance club, and it was not easy to break its monopoly.
But unexpectedly, Western countries have now provided such a good opportunity.
When India imports crude oil from Russia, it can no longer use this European insurance service, which provides a new market gap for insurance agencies in Russia, India, or third countries, and can take the opportunity to enter this field.
Maritime services are also the same, after no longer using the related services provided by these Western countries, it has given other countries the opportunity to develop.
03, China's opportunity
For China, the relevant industries are not blank, and now we can provide services for other countries to import Russian crude oil.Even taking a step back, if we only provide related services for China to import Russian crude oil, it is enough for companies in the insurance, maritime, and other industries to gain a substantial market share.
Additionally, it is noteworthy in this price cap that the cap only applies to crude oil. Once crude oil is refined into other substances, it also means that there is no price cap.
For the European Union, this phenomenon is a clear loophole.
Many European countries are still heavily dependent on Russia's energy exports. Now, this loophole allows third-party countries to import Russian crude oil, process it, and then export it to European countries.
India is doing just that.
Recently, the scale of India's imports of Russian crude oil has been increasing, both to meet its own needs and because India processes this crude oil and then sells the refined products to Europe, which is experiencing an energy crisis. This has also contributed to a significant increase in India's GDP in 2022.
China's "three oil companies" also seem to be able to take advantage of this opportunity to make some extra money.
04, Lower Oil Prices
In fact, even for Russia, the price cap is not as bad as imagined.
Russia's foreign minister has indicated that Russia will consult with its partners on the issue of crude oil. In the future, whether Russia sells crude oil at a price of $60 per barrel or not, the adjustment of Russian crude oil prices will not be related to the Western countries' price cap on Russian crude oil.In reality, the oil price in the Ural region of Russia itself is within the range of 60 yuan per barrel, so it can be said that the price cap will not lead to excessive damage to Russia's crude oil exports.
Currently, Russia is continuously strengthening its trade relations with Asian countries such as India and China. The future of energy exports will shift from the West to the East.
This represents a good opportunity for the countries in Asia as well. It is believed that China can obtain energy supplies at prices lower than the market value through this channel.
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