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U.S. crude ends below $95/bbl as EU tweaks Russian oil sanctions

Published 07/21/2022, 09:13 PM
Updated 07/22/2022, 04:23 PM
© Reuters. FILE PHOTO: Crude oil storage tanks are seen at the Kinder Morgan terminal in Sherwood Park, near Edmonton, Alberta, Canada November 14, 2016. REUTERS/Chris Helgren

By Arathy Somasekhar

HOUSTON (Reuters) -U.S. crude prices settled below $95 a barrel for the first time since April in choppy trading on Friday after the European Union said it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states this week.

U.S. West Texas Intermediate crude (WTI) settled $1.65, or 1.7%, lower at $94.70 a barrel, while Brent crude futures fell 66 cents, or 0.6%, to $103.20.

WTI closed lower for the third straight week, pummelled over the past two sessions after data showed that U.S. gasoline demand had dropped nearly 8% from a year earlier in the midst of the peak summer driving season, hit by record prices at the pump.

In contrast, signs of strong demand in Asia propped up the Brent benchmark, which settled higher for the first time in six weeks.

Trading in oil futures has been volatile in recent weeks as traders try to reconcile possibilities of further interest rate hikes that could cut demand against tight supply from the loss of Russian barrels.

Russian state-owned companies Rosneft and Gazprom (MCX:GAZP) will be able to ship oil to third countries in a bid to limit the risks to global energy security.

Under tweaks to sanctions on Russia that came into force on Friday payments related to purchases of Russian seaborne crude oil by EU companies would not be banned.

"Short term that definitely is a negative headline that probably gave us a little bit of a sell-off here," said Phil Flynn, an analyst at Price Futures group.

The EU announcement comes after Russian Central Bank Governor Elvira Nabiullina said it will not supply crude to countries that decide to impose a price cap on its oil and instead redirect it to countries which are ready to "cooperate" with Russia.

"Perceptions are growing that the U.S. and EU will implement price caps on Russian oil by year end," said Dennis Kissler, senior vice president of trading at BOK Financial.

"Past history shows that government-induced price caps on commodities are usually short lived and can result in exaggerated prices soon after," he added.

Prices, however, were held back by worries of interest rate hikes that could slash demand and the resumption of some Libyan crude oil output.

Libya's oil production is at more than 800,000 barrels per day (bpd) and will reach 1.2 million bpd by next month, the Libyan oil ministry said.

Iraq has the capacity to increase its oil production by 200,000 bpd this year if asked, an executive of Iraq's Basra Oil Co said.

U.S. oil rigs, an early indicator of future output, remained steady at 599 this week, according to data from energy services firm Baker Hughes.

The global economy looks increasingly likely to be heading into a serious slowdown, just as central banks aggressively reverse ultra-loose monetary policy adopted during the pandemic to support growth, data showed on Friday.

Recent moves in crude oil and interest rate futures anticipate a downturn in the business cycle that will cause oil consumption to dip before the end of the end of the year and into the first three months of 2023.

Investors were also watching for the U.S. Federal Reserve decision on interest rates next week. Fed officials have indicated that the central bank would likely raise rates by 75 basis points at its July 26-27 meeting.

© Reuters. FILE PHOTO: Crude oil storage tanks are seen at the Kinder Morgan terminal in Sherwood Park, near Edmonton, Alberta, Canada November 14, 2016. REUTERS/Chris Helgren

Still, demand in India has remained strong, with refining holding above pre-pandemic levels, while China is also set to make great efforts to consolidate its economic recovery particularly in the third quarter, state media reported.

Money managers raised their net long U.S. crude and Brent futures and options positions in the week to July 19, the U.S. Commodity Futures Trading Commission (CFTC) and Intercontinental Exchange (NYSE:ICE) showed.

Latest comments

Love how the market prices in news that have little to no effect on the economy. Give it 6 months and the energy crisis will be so deep, no amount of irrelevant news will save the markets frkm 130+ brent. Or they will just come up with these news until the problem fixes itself, which is market manipulation.
Europe is allowing 3rd countries so that their own requirements etc fullfiled by new arrangements that they have. so that 3rd countries survives to service them and do not flock to their new arrangements adding to their misery
I admire anybody who tries to learn additional languages, but... What?
More than likely, the Fed will ease up and not send the economy into a depression...and oil and gas will continue to perform based on supply and demand. Price caps seem just another verbal scare tactic in this war of words.
How exactly do you think the Fed can ease up, unless it gives up on getting inflation under control?? As all economists and business leaders agree it has to be one or the other (esp with a very tight labour market). Even if it hits 3% interest rates, inflation will remain at around 5%+ (can see it ease by end of the year but remain high and well above 2% target rates). Only other ways to lower inflation is if a recession emerges to ease demand, or the fed vastly excels its balance sheet sell off (both of which will be bad for stock markets)
price Cap will be in up down on1.1
what cap would be acceptable? 120? 140? 240? anything lower than 100 will be like wishing blood from a rock
Depends on level of Russian war-mongering aggression.
  US crude production is at post Q12020 high.  For nat gas, its at all-time high.  It's a retrumplican lie that the Democrats are suppressing energy production.  Truth is the Biden Admin supports both fossil AND green energy.
 "shows a pro democratic push for fossil" --  I already said: "US crude production is at post Q12020 high.  For nat gas, its at all-time high."  High production happening under a Democrat gov't.
Price caps will have the same effect as sanctions, which only benefited China and other countries while harming western citizens even more than Russia. It’s political theatre meant to distract from the failed leadership of Biden and his allies.
When Russia chose the path of war, the west was going to be harmed regardless.  But Russia needs to be harm, too, to disincentivize further aggression and further harm to the west..
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