The European Union’s ban on the export of Russian oil products is scheduled to begin on February 5.
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Sanctions imposed on Russian crude so far have “failed to be effective” and the new price cap may not be significant, analysts told CNBC.
The European Union plans to ban imports of refined oil products from Russia, including diesel and jet fuel, from Sunday.
The 27-member bloc has banned the purchase and import of offshore Russian crude oil since December.
In addition, the bloc – along with its allies in the Group of 7 and Australia – has set a price cap for Russian offshore oil, which prohibits the use of maritime insurance, finance and other services provided by the West unless it is sold below $60. every barrel.
It is part of a global effort to block Moscow’s ability to raise funds for the war in Ukraine.
Price capitalization “was invented by bureaucrats with finance degrees. No one understands the oil market,” Paul Sankey, president and principal analyst at Sankey Research, told CNBC’s “Street Signs Asia” on Friday.
“It has been a total bomb, it has failed completely.”
Sankey stressed that it is very difficult for the oil market because the Russian oil supply has not been interrupted and “they have kept their exports at a high level.”
“I heard from a good source that the Saudis have asked about how the Russian oil is still flowing,” he said.
“That brings up the question of what will happen with the sanctions that come to the product, because it doesn’t seem to work.”
Ahead of the proposed price cap on Russian refined products on February 5, member states have not agreed on the price cap, according to Reuters. It is expected that a deal can be reached by Friday.
Price cap for refined oil products
Still, Vandana Hari, founder of analytics firm Vanda Insights, said she is also skeptical about the upcoming ban on Russian refined oil products.
“Crude price closing is pretty unimportant,” Hari told CNBC’s “Squawk Box Asia” Thursday.
“I think the cap on processed products that we’re planning – about $100 [per barrel] for diesel and clean products and maybe around $45 for dirty fuels like fuel oil – probably not that important.
Russian oil will find its way to “still receptive” markets like China and India, according to Hari.
“China and India have benefited a lot last year from deeply discounted Russian crude oil prices and the same will happen to Russian refined products,” Hari said, though it could make it more complicated for Moscow to find markets for those products, he added. .
Both China and India have increased their purchases of Russian oil due to Moscow’s invasion of Ukraine, benefiting from discounted tariffs.
Sankey further noted the “greasy oil friendship” and that there are various ways to move Russian oil around the world past the price cap.
“One of the things people have highlighted is looking at Malaysian oil. Crude exports to China are about 1.5 million barrels a day,” Sankey said. “Malaysia only produces 400,000 barrels per day. I don’t think it’s Malaysian crude. So much stuff is out there … theoretical cap.”
China reopens
Separately, Hari said China’s reopening may not move the needle on oil prices in the near term.
Hari highlighted that he does not believe oil prices will reach $100 per barrel anytime soon due to China’s reopening, but it could happen more slowly.
There is still a high degree of uncertainty about China’s oil demand, he added.
“The initial increase in Chinese demand is clear. We see a lot of travel happening domestically, internationally … which is positive for jet fuel. But when does the Chinese economy really pick up momentum again? I think that’s a big question.”
— CNBC’s Sam Meredith contributed to this article