Crude prices headed for a third straight weekly loss after European officials could not agree on a price cap for Russian oil despite debating a level deemed more generous than the market thought to trigger export or production reprisals from the Kremlin.
A record number of new coronavirus cases in No. 1 oil importer China that hardened the resolve of local authorities to hold on to the country’s tough Zero-Covid policy also weighed on crude prices.
Adding to the market’s somber mood were thinner-than-usual trading volumes after Thursday’s Thanksgiving holiday, an event that typically prompts traders to take longer breaks until the weekend.
New York-traded West Texas Intermediate, or WTI, was down $1.36, 1.7%, to $76.89 per barrel by 13:10 PM ET (18:10 GMT). The U.S. crude benchmark, which hit a 10-month low beneath $76 on Monday, was down 4% for the week, after back-to-back losses of 10% and 4% in weeks prior.
London-traded Brent was down $1.38, or 1.6%, to $83.96. The global crude benchmark, slumped to a nine-month low of under $83 on Monday, was down 4% for the week, after back-to-back losses of 9% and 3% in weeks prior.
“So long as the suggested cap on Russian oil remains higher than what the market initially thought, the general impression is the Kremlin will react less adversely in terms of limiting its exports and production,” John Kilduff, founding partner at New York energy hedge fund Again Capital, told Investing.com. “That would be a negative for oil.”
Diplomats from the Group of Seven nations, or G7, have been discussing a Russian oil price cap between $65 and $70 a barrel with their European Union diplomatic counterparts over the past few days, but have been unable to reach an agreement, Reuters reported.
The aim of the G7 and EU is to limit the revenue from oil that could fund Moscow's military offensive in the Ukraine without disrupting global oil markets, but the proposed level is broadly in line with what Asian buyers are already paying.
In China, a coronavirus outbreak on the verge of being China’s worst since the early days of 2020 has exposed a critical flaw in the country’s Zero-Covid strategy: a vast population without natural immunity, the Washington Post reported out of Beijing. After months with only occasional hot spots in the country, most of its 1.4 billion people have never been exposed to the virus, the Post said.
Chinese authorities, who on Thursday reported a record 31,656 infections, are scrambling to protect the most vulnerable populations, the report added. According to Australian-New Zealand bank ANZ, the surge in new infections has already affected fuel demand in China, with implied oil demand seen lower by one million barrels daily than average, at 13 million barrels a day.
Notwithstanding the double whammy of the deadlock on the Russian oil price cap and tumbling Chinese demand for oil, some traders said they expected crude prices to climb next week in anticipation of remedial action by the OPEC+ oil producing alliance when it meets Dec. 4.
OPEC+ — which bands OPEC, or the 13-member Saudi-led Organization of the Petroleum Exporting Countries, with 10 other oil producers steered by Russia — already has an agreement to cut production by 2 million barrels per day till end of next year to boost Brent and U.S. crude prices, which have fallen some 40% from their March highs.
Earlier this week, Saudi Energy Minister Abdulaziz bin Salman indicated that OPEC+ will likely add to those cuts when it meets Dec. 4.