The European Commission has released the prices for the proposed gas and preliminary oil price cap that will be confirmed in the coming days, but both are at a level that is more of a symbolic gesture, rather than the crushing sanctions many hoped would be announced.

The West set the gas price cap for gas price futures traded on the Dutch TTF exchange at an extremely high level of €275/MWh (€2,974 per 1,000 cubic metres). The EU has said it is seeking to prevent "greater damage to the economy" of the EU. However, a caveat means the cap will only be triggered if this price level is breached for two consecutive weeks.

A second proposed trigger is the spread between the TTF exchange price and the global LNG price exceeding €58 within 10 trading days. The price ceiling is limited to only one futures product so that market operators can still purchase gas on the spot market and on the over the counter (OTC) market and thus ensure the security of supply, the EC said.

The restrictions will be valid for a year and come into effect on January 1, 2023. The final price is due to be confirmed by EU energy ministers at a meeting on November 24.

“This price cap for gas is proposed for a year in futures for a month ahead. Thus the EU tries to avoid damaging the gas market, while in reality it costs Russia nothing to sell its gas via pipeline or as LNG at a profitable price. Now the price of gas is at the level of €120 per MWh, or €1,298 per 1,000 cubic metres,” Denis Cenusa said in a tweet. Cenusa is an academic at the East Europe Studies Centre and bne IntelliNews contributor who follows the energy story.

The oil price cap price has not been finalised but will be reportedly in the range of $60-$70 – again at a level that will probably not cost the Kremlin any money.

“Global recession is pulling down the Brent oil price (blue). Russian oil trades at a discount to Brent and that discount now puts the price Putin gets per barrel around $60-65. A price cap of $65 will do little to hurt Putin. The West needs to ramp down the price cap to $30,” Robin Brooks, chief economist at Institute of International Finance (IIF), said in a tweet.

The final oil cap price will be determined at a G7 meeting on November 23 after a “technical exercise” is carried out, the US Department of the Treasury said in a statement the same day.

"The price cap for Russian oil will be set after a technical exercise conducted by the Price Cap Coalition," reads the document, published on November 22 as cited by Tass. No further details were given.

Dutch front-month natural gas futures advanced more than 5% to €126/MWh on November 23, their highest level in a month and extending gains for a fourth session, reports Trading Economics.

A day earlier Gazprom warned it would curb gas travelling through Ukraine from November 28, via the last remaining pipeline still bringing Russian gas to Western Europe. The transit cut will come at a time when temperatures are set to dip below average as the first snows fall in Ukraine and Russia.

However, above-normal temperatures so far this autumn have allowed gas storage sites to remain near full, creating a buffer for the winter as storage in the EU tanks remains well ahead of the five-year average. As of November 20, gas reserves in the EU were 95% replete, and the total storage level in Germany was 100%.

Electricity prices remain elevated in France at €427/MWh after the French power authorities announced disappointing progress with repair work on the nuclear power station fleet, which will keep production of power at half the usual levels for the rest of the winter.

Power prices in Italy (€233/MWh), the UK (GBP283/MWh) and Germany (€178/MWh) have all fallen back from September peaks. Spain (€73/MWh) has the lowest power prices of the major economies in the EU, but is also almost entire non-reliant on Russian gas to fire its generation plants.

Gas price cap at €275/MWh

Gas traders say the price of the cap makes little difference and is largely a symbolic gesture and is unlikely to be triggered.

During the worst of this year’s price spikes rates briefly breached this level and rose to over €300/MWh, but only stayed there for around five days before falling below the price cap level. The proposed gas price cap level is so high that this mechanism would not have been triggered any time this year, despite the ongoing energy crisis.

“Even at the peak of the EU gas price crisis in August, when prices briefly hit an all-time high of €342 per MWh, they didn't stay above the €275 per MWh for two consecutive weeks. So the cap would not have been activated,” said Javier Blas, a commodities columnist at Bloomberg in tweet. “We now have a cap that doesn't cap.”

Brussels remains very reluctant to interfere with Russian gas deliveries, as Europe has no effective means for replacing Russian gas supplies. While the storage tanks are full just as the first snows fall in Europe, the problem is that while it seems likely that the EU will be able to get through this winter without running out of gas, the International Energy Agency (IEA) warned in a recent paper that next year Europe’s storage tanks cannot be filled without more Russian gas.

LNG deliveries to Europe have soared this year, making up much of the shortfall, but Russia has still sent 60bn cubic metres of gas to Europe in the first half of this year, about half its usual level, and that gas will be almost impossible to replace, even with elevated LNG imports.

Russian state-owned energy monopoly Gazprom repeated threats the same day that any country attempting to impose the gas price cap on Russia will simply be cut off from supplies of Russian gas.

“Russia is using gas as a tool of political pressure, not for the first time. This is a gross manipulation of facts in order to justify the decision to further limit the volume of gas supplies to European countries,” said Ukrainian gas operator’s representative Olha Bielkova, as cited by the Kyiv Independent.

Oil price cap at $60-$70

The Russian oil price cap will be set between $60 and $70 per barrel, the Wall Street Journal reported on November 22, citing US officials, a level that will make little difference to the Russian budget, if those prices are confirmed at meetings slated for later this week.

“In October Urals averaged ~$70. Russia’s budget assumes Urals price will be $70 in 2023, decline to $65 in 2025. And with Urals roughly at $60 the budget earns ‘base’ O&G revenue, i.e. no new savings,” said Ivan Tkachev, the economics editor at RBC and one of the most respected business journalists in Russia.

The proposal also includes a 45-day grace period that will exempt any oil loaded before the embargo comes into force but delivered afterwards, provided that it is delivered before January 18.

The Russian Duma voted through the 2022-25 budget in the second of three readings on November 21, setting the assumed price for oil this year at $70 and forecasting a budget deficit of 2% of GDP, in keeping with the Ministry of Finance (MinFin) forecasts for the deficit made in April at St Petersburg International Economic Forum (SPIEF).

Robin Brooks, the chief economist at Institute of International Finance (IIF), among others has called for a $30 oil price cap that would plunge the Russian budget into deep deficit and almost certainly lead to a balance of payments crisis if enacted.

However, the EU has been reluctant to impose too harsh a cap after the Kremlin made it clear that it would simply stop deliveries to any country that attempts to cap prices. Russia delivers some 2mn barrels of crude oil to the EU per day, an amount that would be very difficult to source from other producers. Oil traders say that could lead to a spike in oil prices and renew the energy crisis that Europe is already suffering from.

The oil cartel OPEC seems to be anticipating the shortage of supply after the oil embargo on crude deliveries to Europe comes into effect on December 5, after it announced this week that it was mulling an increase in production, after it cut production quotas last month by 2mn barrels per day (bpd) – roughly the same amount that Russia delivers to Europe.

OPEC+ countries, led by Saudi Arabia and including non-permanent members like Russia, are considering the possibility of stepping up oil production in December to 500,000 bpd. A final decision is due to be announced at the next meeting on December 4 – the day before the EU embargo is due to start.

The US has already complained bitterly to Riyad that OPEC+ seems to be working against the Western oil sanctions on Russia by rebuffing US calls on the Kingdom to increase oil output to bring prices down and so put more pressure on Moscow. The Saudi have denied the reports that OPEC+ is planning an increase. The cost of a barrel of Brent on the production increase news fell below $83 for the first time since the end of September.

With the European Union oil embargo looming in December, Russia has already lost more than 90% of its market in the bloc’s northern countries, Bloomberg reported earlier this week. Russia shipped just 95,000 bpd to Rotterdam – its only remaining European destination for seaborne deliveries outside the Mediterranean/Black Sea basin – in the four weeks to November 18, down from more than 1.2mn bpd sent to the region’s ports each day in early February. Total volumes shipped from Russia fell to a nine-week low of 2.67mn bpd in the seven days to November 18, the newswire reported.

Purchases of oil from Russia by India and China have soared, taking up most of the slack caused by falling European imports, but both are reportedly now importing about as much oil as they can as they run up against refinery capacity limitations.

China in particular has seen the imports of Russian oil double from $35bn worth of gas last year to $60bn this year – even with a reported 25%-30% discount on the market price – but reportedly China has slowed the rate of imports while Beijing waits to see if it can demand deeper discounts from Russia after the oil embargo comes into effect next month.