Concerns that a new cap on the price of Russian crude could disrupt global supplies in the coming months have pushed up oil prices.
A separate agreement by major oil-producing nations to continue slashing output to support prices has also contributed to the increase.
On Monday, the price of Brent crude oil increased by about 2% to $87.25 per barrel.
However, this is still significantly below the peaks witnessed following the Russian invasion of Ukraine.
Higher oil prices tend to increase gasoline costs and the cost of living in the United Kingdom, which is increasing at the quickest rate in 41 years.
Price cap
The G7 group of major economies capped the price of Russian oil at $60 per barrel on Monday to “prevent Russia from benefitting from its aggression against Ukraine.”
It will prohibit the shipment of any Russian crude sold for a higher price using G7 and EU tankers, insurance companies, and financial institutions. Many of the world’s largest shipping and insurance companies are headquartered inside the G7.
Russia, the second-largest crude oil producer in the world, has stated that it will not accept the price cap and has threatened to cease sending oil to countries that adopt the measures.
According to Jorge Leon, senior vice president of the Norwegian energy consulting firm Rystad Energy, oil prices could rise as a result.
“Russia has made it abundantly clear that they will not sell crude oil to anyone who agrees to the price cap,” he stated.
Therefore, it is likely that we will experience some disruptions in the future months, and consequently, oil prices will likely begin to rise again in the next weeks.
Moreover, on Sunday, the group of leading oil-producing nations known as Opec+ reaffirmed its commitment to its policy of cutting output to support global prices.
Opec+ is comprised of 23 oil-exporting nations, including Russia, that meet frequently to determine the amount of crude oil to sell on the global market.
As a result of Russia’s invasion of Ukraine, worldwide oil prices increased to more than $120 a barrel due to fears of a Russian supply shortage.
Since then, however, they have declined significantly as the global economy has slowed and countries have reduced their oil consumption.
This decision by Opec+ to maintain the current quota is implicit support for the oil market, according to Kang Wu of S&P Global Commodity Insights.
According to analysts, the relaxing of Covid limitations in some Chinese cities also contributed to the increase in oil prices, which could lead to a rise in oil consumption.
After massive protests against the country’s zero-Covid policy, several cities in China, notably Urumqi in the northwestern region, have said they will relax draconian lockdown regulations.
In addition to the EU embargo on imports of Russian crude oil by sea, the US, Canada, Japan, and the United Kingdom have also made similar guarantees.
This weekend, however, Ukraine’s president Volodymyr Zelensky described the cap as “weak” and not “serious” enough to harm the Russian economy.
While Russia will undoubtedly feel the effects of the sanctions, the damage will be mitigated by its decision to sell oil to other markets, such as India and China, which are now the top purchasers of Russian crude oil.
Dmitry Peskov, the spokesman for the Kremlin, stated on Monday that Russia will respond to the additional restrictions, adding that they would not halt Russia’s military campaign in Ukraine.
Peskov told reporters that Russia and the Russian economy can meet the needs and conditions of the special military operation.
