Urals at $62.60. Time to panic?

The Urals oil price -- the benchmark price for Russian crude oil exports to the west -- held resolutely above the cap limit of $60 / barrel all last week, closing at $62.60 on Friday.  Russia's eastern ESPO oil price also rallied, ending the week at $72, only $5 / barrel below the US West Texas Intermediate (WTI) benchmark.

​More interestingly, the Urals discount, the difference between the Urals and Brent oil prices, narrowed, closing the week around $18 / barrel.  The discount appears to narrow when Brent exceeds $80 / barrel.  This makes intuitive sense, as higher oil prices reflect greater bargaining power by sellers, including the Russians, which may cause the discount to narrow.  Put another way, when Brent is above $80, Urals may rise faster than Brent.

​Do last week's developments signal the collapse of the Price Cap?  Maybe not.  Urals stood above $60 for most of April, and then retreated back below the cap limit.  Therefore, to announce the death of the Price Cap would seem premature.  Still, the ESPO discount has been narrowing gradually since March, so the Price Cap on Urals may also become less binding over time.  

It is not yet time for panic, but concern is certainly warranted.