Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Oil has worst week since March amid what Putin calls 'stupid' price cap

Commodities Dec 09, 2022 02:56PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.
 
LCO
-2.86%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CL
-3.49%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Barani Krishnan

Investing.com -- Vladimir Putin showed his irritation on Friday with the West’s price cap on Russia’s oil, calling it “a stupid proposal” among other things. The market seemed to think otherwise though.

After a brief and slight pop on the Russian president’s comments, crude prices settled down for a sixth day straight day in a week where the front-month contracts swung as much as $4 a barrel a day on supply uncertainties spawned by the price cap and on recession fears in the United States and Europe.

“The short-term crude demand outlook has deteriorated significantly as no one has a strong handle on how bad a recession will hit the U.S. economy,” said Ed Moya, analyst at online trading platform OANDA. “Energy traders are going to trade very technically here and probably look to defend the $70 level for WTI crude.”

WTI, or New York-traded West Texas Intermediate crude for January delivery settled down 44 cents, 0.6%, at $71.02 per barrel. The U.S. crude benchmark ended the week down $9.28, or 11.6%, making it its worst week since the week ended March 25. WTI’s session low was $70.11 — a bottom not seen since Dec 21, 2021 and practically a dime above the key $70 support.

London-traded Brent crude for February delivery settled down 5 cents, or 0.07%, at $76.10. For the week, the global crude benchmark down more than $9.47, or 11.%. Brent’s intraday low was $75.14 — a trough not seen since Dec 23, 2021 and less than cents above the key $75  support.

As of Friday, WTI was down 4.8% for all of 2022. In comparison, the U.S. crude benchmark was up 73% in March when it traded just shy of $130 a barrel. Brent was off 1.4% on the year, after being up 80% in March when it rose to just short of $140 a barrel.

The oil trade, meanwhile, was bracing for more volatility in 2023 as the West’s price cap on Russian oil and headwinds to global growth offset potential demand surges and supply crunches.

“Choppy is the word to describe how oil markets are likely to be in the coming days and weeks,” said John Kilduff, partner at New York energy hedge fund Again Capital. 

“There are worries about Europe in recession and of central banks over tightening to get a handle on inflation. Then, you have the occasional headline of a pipeline in trouble, like Keystone. Anything could yank the market two bucks either way on any day. The market is nervous as a tick.”

The past two sessions were a perfect example of the price swings that could come ahead in oil.

In Thursday’s business, crude initially rallied on reports of a tanker pile-up in Turkish waters, with authorities there apparently checking one vessel after another for oil of Russian origin.

The U.S. Treasury then issued a statement, saying there was no need for Turkish authorities to do checks beyond the declaration made by shippers. It also said the government in Ankara was working quickly to resolve the issue and that Turkey shared U.S. interests in maintaining a well-supplied oil market.

Crude prices fell after that as it became clear that there were no supply snafus due to the price cap. 

Thursday’s swings in oil were exacerbated by the closure of the gigantic 622,000 barrel-per-day Keystone pipeline after an oil spill. The pipeline carries heavy Canadian crude from Alberta to the U.S. Midwest and Gulf Coast. Its shutdown in principle put a hefty amount of crude back into the market at the same time that global economic slowdowns raised fuel demand fears.

Sentiment remained bogged down in Friday’s session by worries that the U.S. Federal Reserve and the European Central Bank could resort to longer rate hikes through 2023 despite both signaling lately that their aggressive monetary tightening in recent months could be headed for a pivot.

One problem for central banks to stay on track with rates: inflation that simply refuses to be tamed easily. Friday’s U.S. Producer Price Index data for November grew at a faster-than-expected rate, disappointing policy-makers counting on weaker price pressures that would allow them to ease up on monetary tightening that could hurt growth.

On the price cap front, Putin said Russia might retaliate with production cuts, although it would have to discuss that first with its allies in the OPEC+ global oil producers led by Saudi Arabia. 

"We are thinking about this, there are no solutions yet,” the Russian president said, referring to the price cap and Moscow’s likely response, that could include production cuts. He added that “concrete steps” will be outlined in a presidential decree “that will be released in the next few days”.

Since Monday, the Group of Seven, or G7 club of rich nations, along with the European Union and other allies have imposed a $60 selling price limit on Russian oil.

The move has had traders scratching their heads to figure out a landing price for Urals — the reference for Russian oil, which is one of the world’s more important benchmarks for crude other than the Dubai Light and the ubiquitous WTI and Brent.

In theory, the price cap shouldn’t matter much as it does now as Urals on their own were quoted at around $60 per barrel just before the limit announced by the West.

In practice though, the cap matters a lot — to Putin at least. 

His remarks on Friday showed how annoyed he was at the idea of the United States and its allies in trying to stop his advance in Ukraine by using Russia’s own oil as a weapon against him — never mind that the Russian president himself was holding the West hostage to Russian energy just months ago when he threatened to cut off gas supplies to Europe.

"This will lead to the collapse of the industry itself, because the consumer will always insist that the price be lower,” Putin said. “The industry is already under-invested, under-funded, and if we listen only to consumers, then this investment will be reduced to zero.”

"All this will lead at some stage to a catastrophic surge in prices and to the collapse of the global energy sector. This is a stupid proposal, ill-conceived and poorly thought-out."

Putin doubled down on Friday on his Ukraine mission, dismissing Western attempts to squeeze Russia’s oil earnings via the price cap in order to slow down its war machinery. 

Putin alluded to the $60-per-barrel limit set by the West as proof that Russia’s finances won’t be hurt, saying that it corresponded with the level that Russia was currently selling its oil at. 

What the Russian president perhaps failed to realize was that traders were betting on the same thing — that the cap won’t really matter to Moscow unless WTI and Brent prices go a lot higher — making Putin’s threats of retaliation seem hollow for now.

Oil has worst week since March amid what Putin calls 'stupid' price cap
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
Thomas Crownsky
Thomas Crownsky Dec 10, 2022 1:34AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Maybe the real issue is food security in Russia and the oil trade the way to express the frustration. Nevertheless the love of power is to be changed to diplomacy for the power of love.
Sylvia Doloff
Sylvia Doloff Dec 09, 2022 5:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
poor little putin he mad at united states baby is mad he is crying poor baby
Brad Albright
Brad Albright Dec 09, 2022 4:29PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Putin is failing to meet any of his strategic objectives and the West is squeezing his tactical options.
Brent Oil
Brent Oil Dec 09, 2022 4:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If Russia makes sizeable production - and Putin could be provoked from a pride perspective - it will indeed make the price of oil explode to the upside, thus not be a hollow threat, Mr. Krishnan.
Brent Oil
Brent Oil Dec 09, 2022 4:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Production cut
Barani Krishnan
Barani Krishnan Dec 09, 2022 4:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Brent Oil  Yes, but he has to cut. They need the money now, from all indications that we can see, despite his bravado. Only time can tell. Thanks and bests.
Ryan Penna
Ryan Penna Dec 09, 2022 3:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I do hate that I agree with Putin. Econ 101, price caps ARE stupid.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email