Russian Oil: As the Group of Seven (G7) countries considered a price cap on Russian oil above where the crude grade is presently trading, the price of oil dropped by more than $2 per barrel on Wednesday.
U.S. West Texas Intermediate (WTI) crude futures were down $2.39, or 2.95%, at $78.56 per barrel at 1314 GMT, while Brent crude futures down $2.71, or 3.07%, to $85.65 a barrel.
Early in the trading day, both contracts increased by more than $1/bbl, but “pared gains following news that the G7 price cap on Russian oil could be beyond the amount it is trading at the moment,” according to Giovanni Staunovo, a commodity analyst at UBS.
A European official said on Wednesday that the G7 countries are considering a price restriction on Russian seaborne oil in the range of $65-70/bbl.
According to Refinitiv data, Urals crude shipped to northwest Europe is currently selling at roughly $62-$63/bbl, however it is higher in the Mediterranean at about $67-$68/bbl.
The price cap will likely be changed a few times a year, according to a senior U.S. Treasury official on Tuesday.
The announcement increased concerns about demand for crude oil in China, the world’s largest importer, which has been dealing with an increase in COVID-19 cases as Shanghai tightened regulations late on Tuesday.
An OECD economic outlook that predicts a slowdown in the rate of global economic expansion next year added additional pressure.
“On the bright side, the OECD does not envisage a global recession and maybe this helped oil prices and stocks strengthen further,” said analyst Tamas Varga at PVM Oil Associates.
The market is also waiting for information on potential economic contraction and future rate hikes in the minutes from the US Federal Reserve’s November policy meeting, which are due at 1900 GMT, according to Varga.
According to market sources, a decrease in U.S. crude stocks, which were down by around 4.8 million barrels for the week ending Nov. 18, which was reported by the American Petroleum Institute, reduced the price loss. [API/S]
The Energy Information Administration (EIA) is scheduled to release U.S. stock data on Wednesday at 10:30 a.m. (1530 GMT).