The price cap on Russian oil is 'immaterial' and won't make a significant difference on market pricing, analyst says

• The European Union's price cap on Russian oil started Monday, and it's set to $60 a barrel.
• The CEO of Vanda Insights told Bloomberg that the impact of the price cap on markets, however, will be muted.

The European Union's price cap on Russian oil has started as of December 5, but it's not going to leave a meaningful impact on oil markets, according to Vanda Insights.

The price cap does save face politically for the European bloc, Vandana Hari, CEO and founder of Vanda, told Bloomberg on Monday, but with the ceiling set at $60, that's still five dollars a barrel higher than what Russian crude was trading at near the close of last week.

"It's certainly not going to achieve one of its critical aims, which was to try and crimp Russian oil revenues," Hari said. "If it were trying to ensure that European shipping companies, insurance companies...remain in the game, you know, continue to have that business of Russian crude flowing into third countries, I don't think that's going to happen either because China and India have remained noncommittal and I don't expect them to sign up now either."

When asked whether the new measure against Russia would make a meaningful difference on pricing, Hari said it would not.

The EU also intended for the price cap to prevent a spike in crude prices and stave off a supply crunch, but those outcomes are also unlikely to pan out given the demand concerns and COVID lockdowns in China, she added.

Beijing recently made the decision to ease some of its zero-COVID rules in certain cities, but Hari expects China's virus- policy pivot to be chaotic and confusing with regards to its impact on crude flows.

"It's obviously on completely uncharted territory," she said. "As the second largest oil consumer in the world after the US, and the single biggest contributor of demand growth, clearly China is key for oil markets. The problem here is that's going to be lots of uncertainty and unpredictability about its COVID pivot."

Hari said it will be the combination of weak demand in China and a global economic downturn that determine how oil prices move, rather than the price cap on Russian crude.

"It's really, as I said, it's immaterial," she said."