Oil prices fell sharply again on Wednesday, still buoyed by the resurgence of the Covid-19 pandemic in China, but also affected by the prospect of a Russian oil price ceiling seen as timid. The price of a barrel of Brent North Sea oil for January delivery fell 3.33% to close at $85.41. As for the barrel of American West Texas Intermediate (WTI), also for delivery in January, it fell by 3.59%, to $77.94.
A new outbreak of Covid has broken out in Beijing, which has registered nearly 1,500 new cases in the last 24 hours, according to the National Health Commission (NHC), a record since the start of the pandemic. Offices and cultural venues have been closed and residents are advised not to move from one neighborhood to another. The maintenance of the Covid-0 policy by the Chinese authorities raises fears of a slowdown in demand for black gold, of which China is the world’s largest importer.
Towards a European cap for Russian oil prices
The pullback was also buoyed by news leaking through the negotiations on the Russian oil price cap mechanism. According to various media, the members of the G7 would have mentioned a range of between 65 and 70 dollars per barrel. Therefore, they would authorize Russia to sell and export its crude at or below this price, allowing it to partially escape the European embargo that will take effect on December 5.
“This ceiling corresponds more or less to the price at which the Russians were already selling their oil these days,” explains John Kilduff of Again Capital. “So we shouldn’t be deprived of significant amounts of Russian oil. It’s a big relief for the market, which is why prices are coming down.”
Expected increase in gas demand
The latest headwind for prices, the weekly report on the state of US inventories from the US Energy Information Agency (EIA) showed a drop in demand for refined products, particularly gasoline, last week. Against the tide of black gold, gas prices took off on Wednesday, on both sides of the Atlantic. The main US contract gained 7.8%, while the European benchmark, the TTF, gained more than 8.2% on the session.
For Eli Rubin of EBW Analytics Group, this acceleration is due in part to the announcement of colder weather in the United States in early December, as well as the threat of a strike by rail workers, at the same time. A possible paralysis of the railway would penalize the transport of coal and trigger the demand for natural gas, anticipates the analyst. On the European side, the gas boom is also due to the arrival of the cold weather but also to the slight drop in reserves in Europe, which frees up storage capacity and stimulates prices.
Source: BFM TV
