NEW DELHI: The cap on Russian oil by the European Union (EU), G7 and Australia is likely to increase the price of crude oil in the market, believes market experts. According to experts, the cap on Russian oil, which is effective from today (5 December 2022), will also increase the under-recoveries of refiners like Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited, Hindustan Petroleum Corporation Limited, Reliance Industries Limited, Nayara Energy Limited on sale of transport fuel and LPG.
“The cap on Russian oil is likely to lead to some moderation in supplies from Russia for the initial few months which could lead to increase in crude oil prices,” said Prashant Vasisht, Vice-President and Co-Head, Corporate Ratings, ICRA Limited. “This could potentially benefit upstream companies even as downstream companies could post under-recoveries on sales of auto fuels and LPG,” he added.
Upstream companies are those which are engaged in exploration and extraction of crude oil while downstream companies refine and sell the crude.
In a bid to restrict Russia’s revenue from crude export, the EU, G7 and Australia proposed to cap Russian oil at $60 per barrel. The price cap means Russia can’t ship its crude more than that price, using G7 and EU tankers, insurance companies and credit institutions. The many major shipping and insurance companies are based within the G7. However, Russia, which is the world’s second largest oil producer, denied accepting the price cap, and said it would stop oil supply, whosoever country follows the price cap.
Meanwhile, India, which used to import less than 1%, enhanced its export manifold this year, and now imports 22% of its total crude from the country.