Japan is set to reduce the price cap on Russian oil from $60 to $47.6 per barrel. This lower cap will take effect on Friday as part of a broader set of sanctions. The new sanctions also include further asset freezes and export controls on Russian entities and those in other countries. The European Union put a similar cap in place last July.

Market Volatility Expected

Japan’s decision to lower the price cap on Russian oil could lead to significant instability in energy markets next week. We can expect an immediate increase in prices of benchmark crudes like Brent and WTI as the amount of oil that meets sanctions decreases. This situation creates uncertainty in global supply, which markets will respond to quickly. When the European Union introduced its lower cap in July 2025, Brent prices jumped by 5% in the following two weeks. This was further influenced by reports of declining OPEC+ compliance, which is currently estimated at just 92% for August. The recent Energy Information Administration report also showed U.S. crude inventories decreased by a surprising 2.8 million barrels, reinforcing a positive outlook. To prepare, traders might consider using short-dated call options on key oil ETFs or futures contracts, especially those for November 2025 delivery. The likely increase in implied volatility makes long straddles a good choice for traders expecting sharp price changes but unsure of the direction. These strategies could help us profit from the increased market fluctuations that this news will bring.

Risk Management Recommendations

We should remember how the market reacted in 2023 and 2024 when Russia successfully rerouted its oil exports to China and India using a fleet of tankers. While this new cap adds financial pressure, these alternative buyers may limit how high prices can go. So, anyone holding long positions should carefully manage their risk because a sustained price increase is not guaranteed. It’s also important to keep an eye on key spreads, as the discount on Urals grade crude relative to Brent is expected to widen. This could create a pairs trading opportunity for those with access to these markets. Additionally, the Brent-WTI spread might also increase if European refineries must offer higher bids for non-Russian seaborne cargoes. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now