Ukraine war: Oil prices rise as cap on Russian crude looms

Oil prices rose on Monday following an agreement by the G7 group of nations and its allies to cap the price of Russian oil at $60 (£49) a barrel.

Brent crude added around 0.7% to above $86 in Asia trading.

The move – which could come into force on Monday – raises Western pressure on Russia over the invasion of Ukraine.

It comes after oil producers’ group Opec+ agreed to stick to its policy to reduce production, amid slower global growth and higher interest rates.

“This decision by Opec+ to keep the quota where it is… is by itself an implicit sort of support to the oil market,” Kang Wu of S&P Global Commodity Insights told the BBC.

Opec+ is a group of 23 oil-exporting countries, including Russia, which meets regularly to decide how much crude oil to sell on the world market.

Traders are also reacting to strong US jobs data and the easing of Covid restrictions in some Chinese cities.

More cities in China, including Urumqi in the north west, have said they will loosen curbs after mass protests against the country’s zero-Covid policy.

“Belief that China may accelerate reopening plans has triggered some early morning optimism,” said Stephen Innes, managing partner at SPI Asset Management.

But he cautioned against “chasing oil higher with China’s reopening as there will be a massive surge in Omicron cases, that could keep mobility on the downswing at least through the first quarter of next year”.

In a joint statement last week, the G7 and Australia said the $60 cap on Russian oil would come into force on Monday or “very soon thereafter”.

They added that the measure was meant to “prevent Russia from profiting from its war of aggression against Ukraine”.

The price cap was put forward by the G7 in September and aims to stop Moscow profiting from oil exports while avoiding a price spike.

It means only Russian oil bought for less than $60 a barrel will be allowed to be shipped using G7 and EU tankers, insurance companies and credit institutions.

This could make it difficult for Moscow to sell its oil at a higher price, because many major shipping and insurance companies are based within the G7.

The G7 is an organisation of the world’s seven largest so-called “advanced” economies, which dominate global trade and the international financial system. They are Canada, France, Germany, Italy, Japan, the UK and the United States.

Prices of oil and gas have soared on concerns that Russia’s invasion of Ukraine could hit supply.

Russia is the world’s second top producer of crude oil after Saudi Arabia, and supplies around a third of Europe’s needs.

US Treasury Secretary Janet Yellen said the price cap would also further constrain Russian President Vladimir Putin’s finances and “limit the revenues he’s using to fund his brutal invasion” while avoiding disrupting global supplies.

However, Ukraine President Volodymyr Zelensky called the cap “a weak position” that was not “serious” enough to damage to the Russian economy.

Russia has said it will not accept the price cap, and threatened to stop exporting oil to countries adopting the measures.

An EU-wide ban on Russian crude oil imported by sea will also take effect on Monday.

Although the measures will most certainly be felt by Russia, the blow will be partially softened by its move to sell its oil to other markets such as India and China, who are currently the largest single buyers of Russian crude oil.