The Group of Seven (G7) rich nations and Australia have decided to set a fixed price when they finalize a price cap on Russian oil later this month, as against adopting a floating rate, Reuters reported, citing anonymous sources.
“The Coalition has agreed the price cap will be a fixed price that will be reviewed regularly rather than a discount to an index," a coalition source told Reuters. "This will increase market stability and simplify compliance to minimize the burden on market participants.”
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In recent weeks, U.S. officials and G7 countries have indulged in intense negotiations regarding the plan to impose a price cap on sea-borne oil shipments, scheduled to take effect on Dec. 5. This is to ensure EU and U.S. sanctions targeted at limiting Moscow's ability to fund its Ukraine war do not throttle the global oil market, the report said.
Oil prices fell on Thursday over fears of weakening demand. The United States Brent Oil Fund BNO closed 1.03% down while the Vanguard Energy Index Fund ETF VDE closed 1.94% higher.
Concerns: Coalition partners have agreed to regularly review the fixed price and revise it as needed, the source told Reuters.
The coalition was concerned that a floating price pegged below the Brent international benchmark might enable Russian President Vladimir Putin to game the mechanism by reducing supply, the report pointed out.
The downside of the fixed price system is that it will need more meetings of the coalition and bureaucracy for regular review, the source told Reuters.
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