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Russian oil price cap ‘increasingly unenforceable,’ says World Bank

The supposed oil price cap imposed on Russia seems toothless as it has not disrupted supply significantly. Production and exports are fairly constant as prices for Russian oil exports continue to defy sanctions

The World Bank says the G7 price cap on Russian crude oil looks increasingly unenforceable as Russia diverts its oil exports from advanced economies to India and China

THE price cap on Russian crude oil “appears increasingly unenforceable” given the recent spike in Urals prices, according to the World Bank’s latest commodities outlook.

“The cap has not created significant supply disruptions, with the volume of Russian oil production and exports remaining relatively constant, in part reflecting the redirection of Russian exports from EU and G7 countries to China, India and Türkiye,” the report said.

It noted increasing uncertainty about the discount at which Russian oil trades since price quotes for the Urals benchmark are opaque and shipping cost estimates from European brokers have become more uncertain as their market share has dropped.

The World Bank said average sale prices above the Urals benchmark were based on Russian customs and finance ministry data.

“It seems that by putting together a ‘shadow fleet’ Russia has been able to trade outside of the cap,” it said.

The official Urals benchmark recently breached the cap for more than three months, averaging $80 per barrel in August.

The World Bank said it expected the global oil prices to average $90 per barrel in the fourth quarter of 2023 and fall to an average of $81 next year as slower growth lessens demand.

The impact of the Israel-Hamas conflict on commodity prices has been muted so far, with oil up just 6%, but escalation could make prices surge.

Agricultural commodity prices fell 3% in 3Q23 amid falling food prices; the food price index fell by 3% led by a 7% drop in grains.

“The non-renewal of the Black Sea Grain Initiative, India’s export ban of non-basmati rice, and the impending El Niño drove volatility in agricultural prices, but ample supplies kept prices on a mild downward trend,” the World Bank said.

“Agricultural prices have risen since September and ticked up almost 4% since the beginning of the conflict.

“Domestic food inflation has moderated but remains at double-digits in four out of ten low-income countries and a third of middle- and high-income countries, adding to the burden of food insecurity in many parts of the world.”

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