European Union mulls $100 a barrel price cap for Russia diesel exports

The European Union is floating a plan to cap the price of Russian diesel at $100 a barrel — a level that might help to stave off the very worst effects of a fuel-imports ban that the bloc will impose on Moscow in 10 days’ time.

The EU’s executive arm is considering cap levels after the G-7 nations offered a price range based in part on the existing cap on Russian crude oil. The thresholds are expected to apply from February 5, the same date as the EU will ban almost all imports of refined Russian products as punishment for the nation’s invasion of Ukraine.

The EU and G-7 want to impose the limits on Russian exports to third countries, whose companies would only be able to access key western services if they comply. The $100-a-barrel cap would apply to products like diesel that trade at a premium to crude, according to sources. A lower $45 threshold would be set for discounted ones like fuel oil. The figures can change during talks between member states.

The negotiations need to balance two competing goals: limiting Russian revenue while preventing price spikes or shortages in key products on the global market.

European officials have been worried in particular about shortages of diesel after the imports ban, and the price cap is aimed at making sure Russian exports can still be sold to other parts of the world, thereby keeping global supplies in balance.

“We would expect Russian crude runs to be largely unaffected by this,” said Alan Gelder, vice president for refining, chemicals and oil markets at Wood Mackenzie. “Flows will largely continue and it will reduce Russia’s revenue.”

To put the $100-a-barrel cap in context, headline diesel futures are currently trading at about $130 a barrel in northwest Europe, according to ICE Futures Europe data.

Russian supplies have, however, recently been trading at a large discount to those from elsewhere, meaning that the impact on Russian sellers’ revenues may not be so large, data provided by S&P Global Commodity Insights show.