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The Russian Oil Price Cap Isn’t as Simple as It Seems — Yves Smith

Summary:
Yves here. This post describes some of the too-obvious signs that the notorious Russian oil price cap was not terribly well thought out. I have to confess I had forgotten that I had learned back in 2008, during the debate over the big oil price runup in the first half of that year, that Saudi oil price sales were based not on spot but an average of specified futures prices to impede manipulation. It appears similar mechanisms are widely used now. The article below discusses how pricing is not done at a fixed amount but in reference to floating prices, so participants in a transaction can’t be certain if the price was below the present cap or not.In other words, the idea of a predetermined price level was goofy, but apparently Janet Yellen couldn’t be bothered to understand the market

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Yves here. This post describes some of the too-obvious signs that the notorious Russian oil price cap was not terribly well thought out. I have to confess I had forgotten that I had learned back in 2008, during the debate over the big oil price runup in the first half of that year, that Saudi oil price sales were based not on spot but an average of specified futures prices to impede manipulation. It appears similar mechanisms are widely used now. The article below discusses how pricing is not done at a fixed amount but in reference to floating prices, so participants in a transaction can’t be certain if the price was below the present $60 cap or not.

In other words, the idea of a predetermined price level was goofy, but apparently Janet Yellen couldn’t be bothered to understand the market she planned to meddle with.…

Economists will be economists. Assuming a can opener and all that.

Naked Capitalism
The Russian Oil Price Cap Isn’t as Simple as It Seems
Yves Smith

See also

Gold Goats 'N Guns
EU’s Oil Price Cap Creates a Price Cap… on Stupidity

Tom Luongo
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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