Oil fell as investors weighed continued European Union talks about cutting Russian supplies and a flight to safety as global stocks slid closer to a bear market.
West Texas Intermediate traded near $107 a barrel as European equities lost more than two per cent. The EU is set to weaken its sanctions passage on Russia after a weekend of wrangling. The bloc will drop a proposed ban on its vessels transporting Russian oil to third countries but will retain a plan to prohibit insuring those shipments, according to documents seen by Bloomberg and people familiar with the matter.
The leaders of the most-industrialized countries made a vow to ban imports from Russia in response to President Vladimir Putin’s war in Ukraine over the weekend. Russia said Monday it expects its oil production to rise in May, and that it’s seeing new buyers for its crude, including in Asia.
Beyond the ongoing war, Saudi Arabia cut prices for buyers in Asia as Covid-19 lockdowns in China weigh on consumption in the top importer. State-controlled Saudi Aramco lowered prices for the first time in four months, dropping its key Arab Light grade for next month’s flows to $4.40 a barrel above the benchmark.
Crude has had a tempestuous year as Russia’s invasion of its smaller neighbor upended global commodity markets, lifting prices. The U.S. and the U.K. have already moved to ban imports of Russian fuel in response to the assault, but the weekend pledge by the G-7 will increase the pressure on Moscow further. Wider markets have also been roiled by the Federal Reserve’s aggressive rate hike path, adding volatility to crude trading.
“While the risk remains skewed to the upside, the latest developments are likely to keep crude oil rangebound with focus instead on refined products,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. China’s Covid-19 outbreak and interest rate hikes are offsetting continued supply concerns from Russia, he added.
- WTI for June delivery fell 2.4 per cent to $107.19 a barrel at 12:02 p.m. in London.
- Brent for July settlement eased 2.2 per cent to $109.95 a barrel.
China’s repeated attempts to halt Covid-19 outbreaks with the lockdown of urban centers including the key hub of Shanghai have curbed energy consumption. Highlighting the economic damage, Premier Li Keqiang warned at the weekend of a “complicated and grave” employment situation.
Still, oil markets remain in backwardation, a bullish pattern marked by near-term prices commanding a premium to those further out. The spread between Brent’s two nearest December contracts was at $13.75 a barrel, close to the level seen in the initial weeks after Russia began its invasion.
© 2022 Bloomberg L.P.