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Oil down almost 4% as ‘generous’ Russia price cap snuffs OPEC cut speculation

Commodities Nov 23, 2022 02:41PM ET
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By Barani Krishnan

Investing.com -- A lost opportunity for the West to add to Vladimir Putin’s ire and financial pain is turning out to be a win for oil market bears and European energy consumers.

Crude prices tumbled 4% on reports that the Group of Seven nations, or G7, was looking at imposing a much-higher-than-thought range of $65-$70 a barrel as a cap for the selling price of Russian oil. 

Traders had originally speculated on a range of $50-$60 for the cap — or $20-$25 lower than current market prices — which had been expected to anger Putin enough for the Russian president to drastically cut production or exports of oil from his country, further squeezing already tight global supplies.  

The price cap and a proposed EU embargo on Russian oil are expected to begin simultaneously on Dec. 5, a day after the OPEC+ alliance of oil producers meets to review output quotas for the 23 nations in the coalition. 

At its prior meeting in October, OPEC+ ordered a 2 million-barrels-per-day cut, to begin this month in order to shore up crude prices that had fallen some 40% from March highs. 

Crude prices did jump some 20% on news of those cuts. But the gains fizzled over the past two weeks, mainly on news of Covid lockdowns in top oil importer China that pushed the market back to the lows seen at the start of the year. 

Saudi Arabia’s Energy Minister Abdulaziz bin Salman earlier this week hinted that the oil-producing alliance could order another cut when it meets on Dec. 4, dismissing a report by the Wall Street Journal that an output hike of 500,000 barrels per day might happen instead. Crude prices came off their lows on Abdulaziz’s remarks but the rebound was modest, at best.

In Wednesday’s session, however, market sentiment in oil took a fresh blow on news of the higher-than-expected price cap for Russian oil, which traders said might be benign enough for Putin not to disrupt the flow of oil out of his country. The cap is meant to limit the amount of money Russia can earn from its oil to fund the war in Ukraine, although market experts are split on whether the initiative will even meet its aim.  

“It’s generous, if you ask me, this $65-$70, that’s being reported for the cap,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “There was so much fear initially how the Russians would react, if the cap had been much much lower. I think that solves the problem. Obviously, the EU wants to ensure continuous flow of Russian oil to its markets and this works out well for both sides.”

The immediate relief for Europe's oil supplies that traders saw took a toll on crude prices Wednesday.

New York-traded West Texas Intermediate, or WTI, settled down $3.01, 3.7%, at $77.94 per barrel. The U.S. crude benchmark hit a 10-month low beneath $76 on Monday.

London-traded Brent settled down $2.95, or 3.3%, at $85.41. The global crude benchmark slumped to a nine-month low of under $83 at the start of the week.

Technical charts pointed to further weakness for both crude benchmarks, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“WTI’s decline could extend towards its 200-month Simple Moving Average of $72.50 and follow through with the 50-month Exponential Moving Average of $70.96,” said Dixit. “An aggressive sell-off beyond $71 can potentially deepened the correction towards the 200 week SMA of $64.80.”

“With Brent, we’re looking at a first swing low of $82.36, then a run deeper into the 200-month SMA of $77.55, followed by the 50-month EMA of $75.20.”

Crude prices were also pressured Wednesday by large weekly fuel stockpile builds reported by the U.S. government.

Crude stockpiles in the United States fell for a second week in a row as refiners stepped up fuel production, leading to large builds instead in gasoline and distillate inventories, data from the Energy Information Administration, or EIA, showed Wednesday.

Crude inventories fell by 3.7 million barrels in the week to November 18, adding to the previous week’s decline of 5.4 million, the EIA said in its Weekly Petroleum Status Report. 

Refinery runs rose by almost 1% last week to 94% of capacity, hitting record highs in the key U.S. East Coast region and boosting inventories of both finished gasoline and blending component products.

Gasoline stockpiles rose by 3.1 million barrels versus a build of 2.2 million the previous week and against expectations for a 383,000-barrel rise. The drop accentuated the 10-year lows in gasoline stockpiles in the East Coast, traders said, reflecting the tight supply situation for America’s premier automobile fuel in one of the nation's busiest markets.

Distillate stockpiles rose by 1.7 million barrels, versus expectations for a 550,000-barrel drop. In the previous week, distillate inventories rose by 1.12 million barrels. Distillates are refined into heating oil as well as diesel for trucks, buses, trains and ships, and as fuel for jets.

Oil down almost 4% as ‘generous’ Russia price cap snuffs OPEC cut speculation
 

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Comments (15)
Jenny lamb
Jenny lamb Nov 25, 2022 12:59PM ET
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Many thanks to 🅐🅝🅓🅨🅐🅢🅣🅡🅞🅕🅧_ on 🅘🅝🅢🅣🅐🅖🅡🅐🅜 for making me earn $12,800 after investing $1,000, trading he is one of the top managers here and his trading skills are top notch. I can now brag about the trading platform when people talk about crypto investing, if you are a beginner this is absolutely the type of expert you need to guide you., Write him a direct message on 🅘🅝🅢🅣🅐🅖🅡🅐🅜👉 🅐🅝🅓🅨🅐🅢🅣🅡🅞🅕🅧_
Alan Rice
Alan Rice Nov 25, 2022 3:08AM ET
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So VP is going to subsidize the west with cheap oil ?? Riiiiiigggghhhh.......
SunilKumar Dixit
SunilKumarDixit Nov 24, 2022 12:41AM ET
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WTI looks vulnerable. Despite some room for consolidation, way remains open for further drop to 73 and 71
Jack Hudson
Jack Hudson Nov 23, 2022 10:16PM ET
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There is absolutely no mechanism in place for price caps. Europe is screwed. US has lowest strategic reserves in 40 years.Suadis told us in America go stuff it. after calling them a pariah state then Biden begging. Also a 10 million dollar award for the capture of Maduro in Venezuela and Biden begging him too. What a disgrace. Russia has large deals with China, India, and Turkey happy to sell Russian oil to Europe. Ukraine, how sad. Sanctions have backfired on the west. Fools.
SunilKumar Dixit
SunilKumarDixit Nov 23, 2022 10:16PM ET
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Jack Hudson. This is how the gullible Europe and escape goat Ukraine have taken it lying down.
Brad Albright
Brad Albright Nov 23, 2022 10:16PM ET
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The oil market disagrees with your opinion.
David Beckham
David Beckham Nov 23, 2022 7:57PM ET
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It seems opec will add oil so go to zero
David Beckham
David Beckham Nov 23, 2022 7:55PM ET
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Ok go to zero
Santosh Oak
Santosh Oak Nov 23, 2022 7:53PM ET
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Are they trying to pitch Putin against OPEC?This will surely keep oil prices lower. Will Putin abide by the west's dictates? Doubtful. Putin is already undercutting prices in the world market.He will happily continue to rake it in @$85/barrel.
Tom Michaels
Tom Michaels Nov 23, 2022 4:28PM ET
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it's all a scam, everything is .
Maximus Maximus
Maximus Maximus Nov 23, 2022 4:28PM ET
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how? can you expand on that?
First Last
First Last Nov 23, 2022 3:57PM ET
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What's your thoughts on how this price cap will affect oil price negotiations between Russia and countries like China & India?
First Last
First Last Nov 23, 2022 3:57PM ET
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Is Russia already getting paid more or less than $65-$70 from those countries?
ottin nerner
ottin nerner Nov 23, 2022 3:57PM ET
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do you know they are buying below the capped price right???? and selling double plus premium, western nations are not buying at the market value that is why their inflation is worse than the east.... that's the mudos operandi since march....
ottin nerner
ottin nerner Nov 23, 2022 3:57PM ET
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India and China are buying below $60, then they're selling it at western countries to evade sanctions at double the price plus premium....
znao sam
znao sam Nov 23, 2022 3:42PM ET
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🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣🤣they want to cap prices but they don't want to cap taxes 🤣🤣🤣🤣🤣🤣Hope that Russia will not sell oil on EU market
 
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