The Biden administration broke its silence on Wednesday on European Union deliberations over a $65-70 per barrel Russian oil price cap on Wednesday, warning far-lower prices cited for some Russian Urals crude shipments should be approached with caution.
A U.S. official told Reuters that recently quoted Urals prices in the $52-a-barrel range do not represent broader pricing in a very opaque market.
The official cited outside estimates showing that over the last two months, the Urals discount to benchmark Brent crude has recently been close to $23 a barrel, falling as low as $17 a barrel. With Brent trading at $85.36 a barrel on Wednesday, a $23 discount implies a Urals price of around $62, much closer to the proposed cap level.
The U.S. Treasury has remained silent over the past week as European Union diplomats have struggled to reach consensus on a price cap level initially proposed in the $65-70 a barrel range.
Some countries including Poland, Lithuania and Estonia have pushed for a far lower $30-a-barrel price limit, arguing this is closer to Russia’s cost of production and that the West needs to squeeze Moscow’s revenues harder.
But the U.S. official’s comments, which signal growing concern over the EU deliberations, come just five days before a European Union embargo on Russian crude imports is set to be phased in.
Lower quoted market prices could erode support for a cap in the $60-70 range. The U.S. official cited concerns over using prices that represent a subset of Russian oil sales.
At issue are recent prices quoted by Argus Media and S&P Platt’s in the past week of around $52 at key Black Sea and Baltic export terminals and cited by Bloomberg.
The U.S. official said such prices do not include transportation and other costs associated with Russian crudes. A price cap of $65 a barrel on Russian crude would represent a meaningful price reduction from recent prices, citing an estimated average of $78 per barrel since March 2022.
The Treasury has been promoting the price cap idea to European allies since the spring of 2022, as they considered and agreed on their phased ban on Russian oil imports to punish Moscow for its invasion of Ukraine.
The cap was conceived as a way to limit Moscow’s oil revenues while keeping Russian crude on the global market to avoid a massive spike in oil prices.
The price cap will be enforced by denying insurance, shipping and other maritime services provided by G7 democracies and Australia to shipments priced above the cap.
Russia said last week it would not supply oil and gas to countries supporting the cap, but will make a final decision once it analyses final figures.