Oil price unshaken as Russian price-cap talks drag, demand lags
Oil prices remained stable as the European Union considered a higher-than-expected price cap on Russian crude and evidence of demand challenges grew.
Brent Crude, the international benchmark, traded 0.49% higher at $85.76 per barrel as of the time of writing this report, according to OilPrice. The US West Texas Intermediate (WTI) rose 0.76% to $78.53 per barrel at the same period after trading in a narrow range and with volumes thin due to the U.S. Thanksgiving holiday.
After discussing capping the country’s seaborne exports at US$65 to US$70 per barrel, EU diplomats are locked in negotiations over how strict the Russian mechanism should be. Bloomberg reported people familiar with the situation as saying that the resumption of talks to finalise the cap was postponed beyond Thursday because more time was needed to iron out the differences.
The higher price cap under consideration, according to Goldman Sachs Group Inc., may reduce the risk of Moscow retaliation, though the mechanism’s enforceability is questioned.
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Rising headwinds in the world’s two largest economies pose a threat to energy demand. In the United States, Federal Reserve economists informed policymakers that the likelihood of a recession in the coming year had risen to nearly 50% as interest rates rose. In China, officials are pressing ahead with aggressive efforts to halt the spread of Covid-19, ordering lockdowns and movement restrictions as daily virus cases reached nearly 30,000, the highest number during the pandemic.
Keshav Lohiya, founder of consultant Oilytics told Bloomberg, “A static price in general just doesn’t work. They’re trying to have the best of both worlds. Either you depress Russian oil to zero, which global oil markets do not want, or you let Russian oil flow.” Crude has tumbled this month, unraveling the gains made in October after the Organisation of Petroleum Exporting Countries and its allies (OPEC+) decided to reduce production. While the price-cap plan had been seen as potentially supportive of oil should it result in lower output, a high cap may end up having a minimal impact on trading.
Key metrics are signaling a weaker market, with WTI’s prompt spread is in contango, a pattern that points to ample near-term supply. Physical differentials have fallen sharply in recent weeks, with Kazakhstan’s CPC crude the latest to plunge on a combination of weak demand and robust supply.
