Oil prices dip on Russian price cap discussions

The EU is reportedly considering a limit in the range of $65 to $70 a barrel

A pump jack in New Mexico. A build-up in US crude stocks has exerted downward pressure on oil prices. Reuters

Crude prices were down on Thursday as expectations of a high price cap on Russian crude exports eased concerns about tight supply.

Brent, the benchmark for two thirds of the world’s oil, was trading nearly 1 per cent lower at $84.65 a barrel at 3.39pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.6 per cent at $77.51

The Group of Seven advanced economies (G7) is set to impose a price cap on Russian oil from December 5 and the EU is reportedly discussing a cap in the range of $65 to $70 a barrel.

“This has been rejected by some as too favourable for Russia and is being pushed for by others that rely on shipping as a vital part of their economy,” said Daniel Richards, Mena economist at Emirates NBD.

“A high price cap would likely be more beneficial in keeping oil supplies uninterrupted as it would mean prices close to what Russia is already receiving.”

The goal of the cap is to keep Russian barrels in the market without allowing Moscow to reap the benefits of high prices.

Brent crude closed in on a record high of $140 a barrel after Russia’s invasion of Ukraine but has since given up most of the gains amid concerns about slowing growth in China and the broader global economy.

US crude stocks fell by 3.7 million barrels in the week that ended on November 18 while oil production was unchanged at 12.1 million barrels per day, according to the US Energy Information Administration (EIA).

Petrol inventories increased by 3.1 million barrels from the week before while distillate fuel stocks rose by 1.7 million barrels, the EIA data showed.

“Traders are also concerned about the build-up in the US inventory data, which has suggested to some extent that there is more than ample supply,” said Naeem Aslam, chief market analyst at AvaTrade.

Producers are gradually ramping up activity in the US shale basins, where oil prices of $50 to $60 a barrel are necessary to turn a profit due to high drilling costs.

The supply could “outpace” the demand for crude, especially with recent economic data from the US pointing to a slowdown in manufacturing, Mr Aslam said.

“Opec's oil supply will likely remain a wild card until their next meeting and could keep oil prices volatile.”

Prices fell by about $5 on Monday after the Wall Street Journal reported that top crude exporter Saudi Arabia was considering raising output targets by 500,000 bpd at the next Opec+ meeting.

Crude futures rebounded to about $88 a barrel after Saudi Energy Minister Prince Abdulaziz bin Salman said the current output cut would continue until the end of 2023.

Opec+, an alliance of 23 oil-producing countries, has slashed its collective output by 2 million bpd amid worsening signs of a global economic slowdown.

The group will meet next on December 4, a day before the G7’s price cap and an EU embargo on Russian crude exports are set to come into effect.