Oil price ceiling is meaningless and impossible, says Japanese expert

TOKYO, Sep 16 – PRIME. The introduction of a price limit on Russian oil is pointless, impossible and ineffective, said Toshihiro Sugiura, a researcher at the Institute for Economic Research of North Asia (ERINA) in Japan, an oil and gas industry specialist who participated in the construction of a gas pipeline from Western Siberia to Europe during the Soviet era, and then worked on the Sakhalin-1 project.

“The introduction of a ceiling on prices for Russian oil and gas is irrational, and, I believe, will not work. The price of such international goods as oil and gas is determined by the balance of supply and demand. In addition, the upper price limit fluctuates in the market every day. Therefore, in practice, the introduction of a price ceiling for goods from any particular country is meaningless,” the expert said.

Sugiura believes that such a decision could be made by people who do not understand the economy. “There is absolutely no point. These are political statements… Prices for such international goods are set every day by the ratio of supply and demand. Therefore, you can set a price ceiling as much as you like, but the real price will change regardless of this. the price is impossible. In the same way, it is impossible to set the price of oil. Therefore, I believe that in the end everything will end with the recognition that it is still impossible. … And if you artificially introduce a rule that Russian oil is not to be bought above such and such a bar, no one will do it anyway,” the expert believes.

He noted that only a reduction in demand can affect prices, and he gave an example of a decrease in Brent oil prices on the international market.

“Now the price gap between Russian oil and Brent oil has narrowed to $20. Previously, Russian oil was cheaper by as much as $40 per dollar. And still, Russian oil, despite the reduction in the gap, is now being bought. … This is due to the fact that the price of Brent was overvalued and jumped after Feb. 24 on buyers’ expectations that oil would become scarce and prices would rise, but demand has not actually risen, in fact, it is declining, and the price of Brent has also begun to decline. the same thing with the American WTI – it was also overstated above the need. And now prices began to fall. Prices grew on one psychological effect that there would be a shortage of oil. Now the oil prices that have jumped are simply approaching their natural level, “Sugiura said.

When asked by RIA Novosti what the price limit for Russian oil could be and in what figures it could be calculated, Toshihiro Sugiura replied that he did not know and considered the very idea of ​​introducing a price ceiling meaningless. “It’s absolutely pointless. Prices should be determined by the market. It can’t be that politicians determine prices. Even if, for example, you decide not to buy Russian oil above $60, there will definitely be those who violate it …. This is business,” the scientist explained.

He noted that the only factor that can really affect oil prices is the reduction in demand. “If they want to set a ceiling on prices for a product as a measure of economic sanctions, then a more effective way would be to ban its import. And the prices for Russian oil (crude and oil products) will naturally fall only if demand decreases,” he said.

The expert believes that inflated world oil prices will drop to the level of plus or minus $60 per barrel. “I think prices will calm down at $60 per barrel. I think that this is the optimal price for oil. It allows both producers and buyers to be calm,” Sugiura said.

The finance ministers of the G7 countries (Great Britain, Germany, Italy, Canada, the USA, France and Japan) on September 2 confirmed their intention to impose price restrictions on Russian oil as part of the expansion of sanctions. It is planned that the price limit will be introduced on December 5 for oil and on February 5, 2023 for oil products. Russian representatives warned in response that the countries that would apply the limits would be left without Russian oil exports.