On price caps and sub-$70 crude

Earlier this month, Brent crude futures touched $70 per barrel levels despite a suggested uptick in the amount of oil OPEC+ was bringing on to the market. 

The widely held belief here was that internal cheating or quota busting within OPEC+ ranks meant the announced increase wasn't what it was being made out to be. 

In step with that, Iran-backed Houthi rebel attacks in the Red Sea upped the geopolitical stakes a bit. 

Then a week ago, the EU and UK moved to lower the price cap on Russian crude from $60 per barrel to $47 per barrel, with effect from September 3. As inventory data at the time also pointed to a decline, traders took their cue and kept prices elevated. 

But keeping prices at $70 Brent levels looked unrealistic then, and has proven to be so in the sessions that have followed since. Thing is, as past Western sanctions and price caps on Russian crude have demonstrated, it always finds a way to reach where those willing to buy it need it, albeit at a discount that's priced comfortably above price cap. 

For instance, the previous price cap and sanctions regime did not prevent India from taking plenty of Russian crude, cracking it and exporting petroleum products and distillates around the world. This point hasn't been lost on the EU, which took a direct swipe at India's Nayara Energy (formerly Essar Oil) - the operator of the country's second-largest single-site refining complex in the coastal town of Vadinar, in which Russia's Rosneft has a stake. 

However, European curbs on Nayara's exports derived from Western sanctions-ridden Russian crude are unlikely to make any tangible difference to the wider scheme of things. India's exposure to the European market is not what it used to be, and its domestic market is more than capable of picking up middle distillate volumes left unexported. 

The wider crude market has also come to the belief that should China and India want Russian crude in higher volumes, they will find a way. Hence, the current decline in prices. Overall, there is ample crude in the market and current price levels are unlikely to be sustained. We are looking at a likely surplus from Q4 2025 to Q1 2026, as yours truly noted via Forbes post earlier this month, if not earlier. As such lower prices may beckon. 

Finally, here are another couple of the Oilholic's Forbes missives - the first a take on OPEC's latest forecast dismissing peak oil demand and projecting a global demand growth of 123 million bpd by 2050 contrary to the opinion of many in the market, and the second, a take on how China and India are keeping coal in play and a future energy transition at bay! 

Well that's all for now folks! More musings to follow soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2025. Photo: Oil production site. © Monika Wrangel / Pixabay, May 2015.