It has been almost two months since the oil price cap was introduced on the Russian supply. But as they say “So far So good”, as the price of Ural Oil remains below the price cap level of $60/ bbl. By the end of this week, the second round of price cap sanctions will be applied that would be on petroleum products.
These sanctions would have more impact on the oil prices as compared to the first one. A successful implementation would lower the demand for Russian petroleum products. These would products would not be bought by India and China as oil is being bought. This is because the refinery capacities in China and India are sufficient to address the domestic and exports market.
This would lead to lower productivity at Russian refineries, resulting in lower oil demand. And it might lead to an oil production cut by Russia that is currently estimated between 0.6 to 1 million barrels per day.
Such an action might to lead an increase in oil prices as China and India focus on growing the economy led by domestic elements. And as the oil prices rise the Ural price will rise as well with a risk of it breaching the price cap levels for the rest of the year.
All these events will unfold over the next few months, setting up a base for the critical second half of the year where a part of the world might be in recession and others growing faster than last year. This might lead to higher inflation risk which would be critical to the trajectory of interest rates.