Oil Prices Fell in Early Trading

Oil prices fell in early trade, extending losses from the previous session, on expectations that US interest rates would rise sooner than expected and new worries that Covid outbreaks may reduce gasoline demand in China.

Brent crude futures fell 22 cents, or 0.2%, to $94.45 a barrel, following a 1.5% decline in the previous session. The contract was set to tumble more than 1% this week.

West Texas Intermediate crude futures in the United States slipped 27 cents, or 0.3%, to $87.90 a barrel, widening a 2% loss from the previous day but remaining on track to close the week flat. To add to the sadness, the Bank of England announced Thursday that it believes the UK has entered a recession and that the economy will not grow for another two years.

Analysts at ANZ pointed to evidence of weakening demand in Europe and the United States, such as fewer people driving and Amazon warning of lower sales, which might impact demand for distillate for its deliveries. To make matters worse, China maintained its severe Covid-19 restrictions as cases surged to their highest level since August on Thursday. Earlier this week, investors speculated that the world’s largest oil importer would ease limits to stimulate the economy.

G7 Has Agreed to Set a Fixed Price for Russian Oil

G7 members have decided to set a fixed cost for Russian oil exports as a cap rather than a discount to a benchmark price. A price range in the mid-60s was previously cited as a possible objective for the cap since it mirrored the range in which Russian oil traded before the latest rally. The World Bank was the most recent to caution the G7 that a cap will not work unless more countries join in. The inferred countries are most likely China and India, now the largest purchasers of Russian crude and have both declined to participate in a price limit arrangement.

Getting China and India on board was once a high goal for the G7 team, but this looks to have altered, according to US Treasury Secretary Janet Yellen, who has led the price limit effort.

The International Energy Agency (IEA) in Paris has warned that Europe could suffer a natural gas shortfall of up to 30 billion cubic meters (bcm) during the critical summer time for refilling its gas storage sites in 2023. The European Union (EU) gas storage facilities are now 95% full. However, it cautioned that the current storage cushion, recent decreased gas prices, and exceptionally mild temperatures should not lead to unduly hopeful predictions.

In the event of a complete cession of Russian pipeline gas supplies to the EU, Europe “may face a challenging supply-demand mismatch.” “It is improbable that Russia would deliver an additional 60 bcm” of pipeline gas supply in 2023. Russian shipments to Europe may come to a halt entirely.

Saudi Arabia Lowers Asian Oil Prices

Saudi Arabia has reduced its official selling prices for oil to all Asian customers, with the flagship Arab Light for December delivery now priced $0.40 lower.

Nonetheless, the final price remained significantly higher than in prior years, with Arab Light at $5.45 per barrel over the Dubai/Oman benchmark.

At the same time, the Saudis upped the price of the oil they will supply to Europe in December, even though Europe is facing a recession just as severe as Asia. Prices in the United States stayed constant. For December delivery in Europe, Arab Light would cost $1.70 more than Brent, and the Extra Light blend would cost $3.40 more than Brent, with price increases of $0.80 and $0.70, respectively.

It is bad news for most of Europe, as the European Union’s crude oil embargo on Russia takes effect on December 5. It means the EU’s oil import bill will rise when it struggles to meet its gas import payment.

Asia is a priority market for the Saudis, with the largest customers being China, India, South Korea, and Japan.

Meanwhile, ties with the United States worsened when the Biden administration chastised the Kingdom for agreeing to a production cut across the OPEC+ group. The Saudis and other OPEC+ members have claimed that the decision was reached by consensus.