Russian authorities have drafted a decree prohibiting the sale of Russian crude oil

to buyers who are members of the Price Cap Coalition or whose purchases are limited
by the G7/EU price cap, according to Russian daily Vedomosti, citing a source with
knowledge of the draught and government sources.

The EU banned maritime transportation services from shipping Russia's crude oil to
third countries beginning December 5 if the oil is purchased for more than $60 per
barrel, and imposed an embargo on seaborne imports of Russian oil into the EU.

According to Vedomosti's sources, the draught presidential decree prohibits Russian

firms from selling crude oil if the contract specifies a member of the Price Cap
Coalition as a customer or if the contract specifies a price cap as a condition for
the sale.

According to the sources, the decree is expected to prohibit such sales from Russia
by July 1, 2023, with the possibility of an extension.

During a press conference on Monday, Kremlin spokesman Dmitry Peskov said the
decree would be released "in the coming days."

Moscow claims that the price cap artificially limits prices in a non-market
mechanism that it refuses to accept.

Russia expects to have legislation ready by the end of the year prohibiting Russian
companies from selling oil to countries in the Price Cap Coalition, according to
Russia's Deputy Prime Minister Alexander Novak.

Last week, Kremlin spokesman Dmitry Peskov stated that Russia was planning a
response to the EU embargo and price cap.

Moscow claims the price cap will not seriously hit its oil production and economy.

Russia's oil production will not plummet now that the EU-G7 price cap on Russian
crude has taken effect, according to Russia's First Deputy Energy Minister Pavel
Sorokin last week.

"Most markets are available for our oil based on adequate market principles,"
Sorokin told reporters in Moscow today, according to Russian news agency TASS.

Russian oil output fell in the spring following Russia's invasion of Ukraine, but
recovered by June.

Nonetheless, Russia is estimated to have been producing around 1 million barrels

per day less than its OPEC+ quota since then.

The price cap on Russian oil exports, which went into effect last week, causing
widespread concern about a possible reduction in shipments, has so far elicited no
dramatic response in the form of export curbs.

Russia, on the other hand, is reportedly considering a relatively mild response to

the sanction action, according to Bloomberg.

Bloomberg reported, citing unnamed sources familiar with the matter, that the
Kremlin's reaction will be a decree by President Putin that does not include a
floor price for crude or a ban on shipments to specific countries.

According to Bloomberg sources, the decree will include a stipulation that Russia
will not sell oil under contracts with a price cap clause.
According to the report, this should have no effect on exports because buyers are
not required to include a clause like this in their contracts under the price cap
regime.

Earlier this week, Russian business daily Vedomosti reported, citing unnamed
sources, that Russia will not sell oil to countries that enforce the price cap, and
that it will not sell oil under contracts that include the price cap as a condition
for sale or as a reference for the buying price.

According to the second report, the decree, which President Putin is expected to
sign into law in the coming days, will be in effect until July 2023 and will not
affect contracts signed prior to December 5.

According to these two reports, fears of an oil market disruption as a result of

the cap's implementation may have been overstated.

To begin with, Russia's stipulation that it will not sell oil to countries
enforcing the cap is merely symbolic.

The EU has banned the majority of Russian oil imports.

The United States and the United Kingdom imposed such bans earlier this year, and
Japan has been exempted from any sanction action that would jeopardise its energy
security by both the G7 and Russia.

Meanwhile, Russia's largest buyers have stated unequivocally that the cap will not
be enforced.

The price cap is also little more than a symbolic gesture.

At $60 per barrel, the cap level is currently more than $10 higher than the current
price of Russia's flagship Urals.

Of course, if this changes, the price cap may—or may not—become a real factor in
Russian oil exports, but for the time being, it has no effect.

However, Russia's Deputy Prime Minister Alexander Novak stated earlier this month
that the country is prepared to cut oil production if necessary in response to the
cap, which may have an impact on global oil supply, which is already constrained.

According to the latest edition of the International Energy Agency's Oil Market
Report, the price cap will reduce Russian oil production by 1.4 million barrels per
day (bpd) next year.

For the time being, Russian oil and fuel are flowing normally.

Indeed, the latter are on the rise as the EU scrambles to stock up on Russian
diesel before imposing a ban on Russian fuel imports on February 5, 2023.

Again, as the IEA noted in its report, it is early days, and any negative effects
of the price cap—whether for Russia or for oil buyers—will not be apparent for some
time.

It will all come down to benchmark prices in the end.

If they remain unchanged, so will Russian oil.

If a rally resumes, the price of Russian oil will rise as well, making things more
interesting.