Oil prices fell sharply on Wednesday after a higher-than-expected price ceiling for Russian oil was announced as part of European sanctions against Moscow over the Ukraine war. On top of that came a surprising increase in U.S. inventories. A barrel of U.S. oil settled 4.5 percent lower at the end of the European trading day. Brent oil prices fell 4.1 percent a barrel.

The EU-proposed range of $65 to $70 per barrel of oil is well above Russia’s cost of production. The price range is higher than what some countries pay for oil. Russia has been selling its crude at a discount of $20 a barrel for months. A higher cap is therefore expected to have less impact on the country’s trade and stocks.

U.S. oil was around $77 a barrel as investors processed higher U.S. inventories. U.S. gasoline inventories rose by three million barrels. This is the biggest increase since July. Meanwhile, demand slowed due to the Thanksgiving holiday.

Russia has previously said it will not sell crude oil to countries that use the ceiling. The cap is intended to punish Moscow for its aggression on Ukraine while keeping the country’s oil flowing.

EU ambassadors will meet on Wednesday to approve the cap mechanism and the proposed price level. On Tuesday, the EU already weakened the latest sanctions program by postponing its full implementation and weakening key shipping rules.

Crude oil prices have been falling sharply for the past few days. Demand from China, the world’s largest importer, remains weak as the country continues to deal with severe corona measures. Beijing has urged residents not to leave the city unnecessarily to curb the spread of the virus.