EU price cap talks on Russian fuel exports set to go to the wire

Quantum Commodity Intelligence - EU countries have failed so far this week to strike a deal on a price cap for Russian oil products, with a deadline for setting the price now just days away.

Talks between EU ambassadors that were due to resume on Thursday will now take place Friday while officials seek a compromise, EU diplomats told the Politico news outlet.

The EU and G7 want to impose the limits on Russian exports to third countries, whose buyers would only be able to access key western services if they comply.

The proposed $100/b cap would apply to products like diesel that trade at a premium to crude, while a reduced $45/b threshold would be set for discounted products such as fuel oil.

The price ceilings are intended to come into force from 5 February, the same date the EU ban on almost all imports of refined Russian products comes into effect.

But according to Politico, Poland and the three Baltic states have pushed for lower price caps on refined products while calling for the existing G7 price cap on Russian crude oil to be lowered from the current $60/b.

Urals export prices averaged $49.48/b in January, according to the Russian Finance Ministry, well below the $60/b price cap. This compares to $50.47/b in December and $76.09/b in January-December 2022.

Progress

Politico said no progress was made at a meeting of EU ambassadors on Wednesday, which also discussed a new EU sanctions package on Russia's ally Belarus.

The European Commission will now continue deliberations behind closed doors, with a view to finally striking a deal later Friday. 

"We trust that an agreement will be reached before February 5," one EU diplomat told Politico. A second diplomat said that the bigger EU countries were becoming "fed up with the moral blackmail" of the hawkish coalition.

According to benchmark European prices published by Quantum Thursday, 2 February, diesel on a CIF cargo NWE basis was valued around $33/b over Brent, having retreated sharply since late January.

Likewise, benchmark spot ARA gasoline barge values dropped from around +$20/b in late January to around +$15/b on Thursday.

Meanwhile, 0.5% fuel oil was at around parity with Brent on Thursday and heavy fuel oil at a $25.50/b discount.  

Brent crude for April loading was assessed by Quantum on Thursday's London close at just above $82/b.