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Oil Falls on EU Conflict Over Plan to Limit Russian Crude Oil

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(Bloomberg) — Oil fell as the European Union set a higher-than-expected price cap on Russian crude and signs of a global recession intensified.

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West Texas Intermediate held steady below $78 a barrel after falling nearly 4% in the previous session. EU officials discussed setting a limit of $65 to $70 per barrel on Russian exports by sea. That’s more than many expected when the Group of Seven first proposed the idea as a way to punish Moscow for the war in Ukraine while keeping markets supplied. The ambassadors are ready for more talks on Thursday amid disagreement over details.

The two largest economies are facing headwinds, jeopardizing energy demand. In the US, Federal Reserve economists told policymakers that the likelihood of a recession next year has risen to nearly 50% as interest rates continue to rise. In China, officials are continuing aggressive efforts to contain the spread of COVID-19, imposing lockdowns and restrictions on movement as daily virus cases approach 30,000, the highest number during the pandemic. is the most.

Crude oil has fallen this month, reversing gains made in October after the Organization of the Petroleum Exporting Countries and its allies decided to cut production. While the price cap plan – which is intended to complement an EU ban on Russian crude flows from December – was seen as a possible factor going forward, should it result in lower production, a higher cap could end up with minimal impact on business.

“They could settle for numbers that Ural is currently trading in, which makes the whole exercise even more irrelevant,” says Vandana Hari, founder of Wanda Insights, referring to Russian raws shipped from western Russia. Is.” Country. “Without a cap, Russian crude would have traded at a deep discount anyway.”

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Goldman Sachs Group Inc. said the higher price cap now under consideration could reduce the risk of retaliation from Moscow, though it doubts the mechanism can be implemented.

Key statistics point to a weak market, with WTI spreading rapidly in contango, a pattern that points to short-term ample supply. The difference between the two closest contracts in Contango was 12 cents a barrel, compared to 24 cents in a bullish backwardation structure last week.

Adding to the softer outlook, US gasoline inventories rose 3.06 million barrels last week, the biggest increase since July, government data showed. Before the Thanksgiving break, demand fell the most in nearly two months.

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