Brent Crude Oil is on the up as G7 price cap deals blow

FXOpen

The price of Brent Crude oil is once again on the rise, after a slow and steady decline during early to mid November bottomed out at $76.28 per barrel on November 26.

Since then, the price has been increasing, and today Brent Crude Oil (WTI) is trading at $81.41 per barrel which is a two week high.

This could partly be down to the price cap for oil purchases from Russia having been set by the European Union at $60 per barrel.

This was set late last week in the form of a limit on the price of Russian seaborne crude and therefore constrain revenues the Kremlin makes from the commodity.

However, the market price of crude oil was at the time around $79 per barrel, meaning that the Russian oil companies refused to sell oil to European Union member states which adhered to this price cap, because it is far below the market value.

As a result, demand increased as the potential supply of crude oil to Europe could be affected by the price cap in which European oil purchasers would be expected to adhere to a policy of paying approximately $20 per barrel less than market value for oil imported from Russian oil giants, an offer which of course has been declined by said oil giants as there is no way they will sell oil to commercial clients for three quarters of its real value.

At the end of last week, Russian energy industry had issued a warning that an oil price cap could wreak havoc on the energy markets and push commodity prices even higher. They weren't wrong.

According to an official document from the European Union, this price limit would be subject to regular review in order to monitor its market ramifications. The document stated that the price should be “at least 5% below the average market price" however the $60 that the cap is currently set at is more than 20% less than the average market value of crude oil.

Given that Russia is an OPEC nation and one of its major national industries is the extraction, refinement and export of raw materials for energy generation, there is no likelihood that Russian energy firms would accept this price for oil products.

The raw materials that the Russian economy relies so heavily on are consumable commodities, traded on global exchanges and with the ability to be used as collateral to back economic asset classes and against national debts. These are liquid gold and therefore will be valued and treated as such.

Volatility in the oil market is here once again.

Start trading commodity CFDs with tight spreads. Open your trading account now or learn more about trading commodity CFDs with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Latest from Commodities

Brent Crude Oil Price Hits Highest Since 1 May Goldman Sachs Predicts a Rise in Brent Crude Oil Prices Gold Price Drops After US Employment Report Market Analysis: Gold Price Gains Traction, Crude Oil Price Rises The Price of Silver Is Acting Weaker Than Gold

Latest articles

Forex Analysis

SNB Unexpectedly Lowers Interest Rate from 1.50% to 1.25%

Today, it was announced that the Swiss National Bank (SNB) decided to lower the interest rate to 1.25%. According to ForexFactory, the analyst consensus had expected the rate to remain at 1.50%, making this decision a surprise.

According

Cryptocurrencies

Bitcoin Finds Support: Will It Last?

The well-known (but anonymous) analyst known as PlanB predicted that Bitcoin's price will reach $150,000 by the end of this year and $800,000 by 2025. How realistic is this?

Analyzing the long-term BTC/USD chart on May 16,

Forex Analysis

GBP Awaits Bank of England Verdict: Volatility Ahead?

GBP/USD

In the first half of the current trading week, the GBP/USD pair has confidently stayed above the significant range of 1.2700-1.2650, continuously attempting to resume its upward trend. Today, everything could change. Depending on the

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 60% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.