A Note From Addison: I am handing over today’s missive to Mark Rossano and his team at Freedom Financial Research again. We appreciate the effort Mark and his team put into their business at Freedom Financial Research and would not put their message in The Wiggin Sessions if we did not trust their work. You can watch the full Session with Mark Rossano here.
We’re going to look at the Russian price cap now that it’s officially agreed upon.
What does it mean? Relatively nothing.
Before we get started there are two terms we need to define: “Urals” and “ESPO”.
“Urals” refers to an oil brand used as a basis for pricing of the Russian export oil mixture. It is a mix of heavy sour oil of Urals and the Volga region with light oil of Western Siberia.
“ESPO” refers to the Eastern Siberia–Pacific Ocean oil pipeline (ESPO pipeline) is a pipeline system for exporting Russian crude oil to the Asia-Pacific markets like Japan, China and Korea. The pipeline is built and operated by Russian pipeline company Transneft.
So, let’s begin. European politicians initially discussed capping Russian oil at $65. Now they’ve come to an agreement to make it $60.
One of the things that we’ve been saying is that “Urals” are already trading well below the price cap that they’ve been talking about.
Let’s be very clear: nobody who buys “ESPO” is participating in this price cap. So ESPO is trading above the price cap. The Russian’s are still getting the money they need to fund the war. Ending that funding was the intended purpose of the price cap.
It never went below it; it never was going to go below.
That’s because it’s already flowing into Asia – mostly China and India, and some other areas.
How do you enforce a price cap? (without shooting yourself in the foot). Source: the Neo Report.
There was a lot of handshaking and backslapping among European politicians when they thought they took money away from Russia with this price cap.
But when you look at the price of Urals, it actually rose after this cap was announced from $45.31 to $48.04.
We’re going to see prices go higher and get closer to that cap, because while now you would legitimize buying crude; as in, “I can buy Russian oil and still be under the cap.”
Again, Russia has come out and said, “We’re not going to sell to anyone that participates in the cap.”
They can play whatever games they say they want to play, but Europe didn’t want to stop the flow of Russian crude. Europe did want to hurt their revenue.
The other thing that it introduced is a 45-day grace period for vessels that sea that loaded their cargo before Monday, giving them until Jan 19th to unload the oil, as well as a 90-day transition period for any future change in the price level.
This just makes sure that nobody’s going to get sanctioned. Shippers can’t dump it in the ocean. They can’t just sell it outright. So, it is just a way to protect the ship owners themselves.
Most G7 nations will stop importing Russian crude by the end of the year.
An EU ban on other refined petroleum products originating in Russia is due next February alongside a cap on those goods.
Now, it’s good that they waited until February to do that because they’re still going to need all of their diesel, but that’s going to become another pivot point.
How does this look going forward? That remains to be seen
Mark Rossano
Editor, The Neo Report
Special to The Wiggin Sessions
P.S. Price caps never work.
P.P.S. There are a lot of ways around this price cap by paying Russia from separate banks: one that is in Europe that is beneath the cap and pays the difference through a Middle Eastern or Asian bank.
Ed note. You can watch the complete Wiggin Session with Mark Rossano, Crazy Rich Saudis, OPEC+ & the Global Energy Crisis, right here. Share it with your friends.
