Oil pares weekly drop as EU strives for price-cap compromise

Oil pared a third weekly loss as the European Union weighed a higher-than-expected price cap on Russian crude and economic slowdown concerns threatened the demand outlook.

Brent traded above $86 a barrel, putting the global benchmark on course for a small decline at the end of a volatile week, with trading volumes thin around a US holiday. European diplomats remain locked in talks over how strict the cap should be, highlighting disagreements between member states. Negotiations could resume Friday but may also slip beyond that.

The cap talks come ahead of an OPEC+ meeting at the start of next month. Iraq and Saudi Arabia’s oil ministers met on Thursday and said the group could take further measures if required to achieve stability in the market. 

Signs of challenges to demand have been accumulating. In China, the world’s largest oil importer, daily Covid infections hit a record this week, prompting officials to step up curbs. Crude has declined this month, overturning the gains made in October after the Organization of Petroleum Exporting Countries and allies agreed to reduce production. 

“Our balances point to slight oversupply until the end of 1Q,” Morgan Stanley analysts including Martijn Rats and Amy Sergeant wrote in a note to clients. “For now, the oil market is faced with macroeconomic headwinds.”

Prices

  • Brent for January settlement added 1.6 per cent to $86.69 a barrel at 9:58 a.m. in London.
  • WTI for January delivery was at $79.52 a barrel, 2 per cent above the close on Wednesday.
  • There was no settlement on Thursday due to Thanksgiving holiday in the US.

The price-cap plan forms part of the response by the EU and the Group of Seven to punish President Vladimir Putin for the invasion of Ukraine by reducing Moscow’s revenue, while at the same time allowing other states to continue imports. The introduction of a cap by western countries will “with high probability” have a negative effect on the energy market, Putin said.

© 2022 Bloomberg L.P.

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