Oil prices declined on Wednesday as investors were concerned about fuel demand despite Russia’s decision to ban crude exports to certain countries and the easing of stringent Covid-19 restrictions in China, the world’s largest crude importer.
Russian President Vladimir Putin on Tuesday signed a decree that bans the supply of crude oil and oil products from February 1 for five months to nations that abide by a price cap on its exports.
Brent, the benchmark for two thirds of the world’s oil, was trading 2.62 per cent lower at $82.12 a barrel at 7.43pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 2.53 per cent at $77.52 a barrel.
“Brent and US crude oil prices are trading lower for the second day in a row as traders are worried about oil demand,” said Naeem Aslam, chief market analyst at AvaTrade.
“This shows that the bulls are not in control of the price and the bearish price action could easily pick up more steam.”
Oil prices have recorded two straight weeks of gains, in part due to rising optimism over oil demand recovering in China, the world’s second largest economy.
The country has shifted away from its zero-Covid policy for the first time in nearly three years, despite a surge in new cases.
On Monday, China's National Health Commission said it would end its quarantine requirements for inbound travellers from January 8. The measures have been in place since the start of the pandemic.
In Russia, a statement on the Kremlin website said: “This [Russia's] executive order was signed in response to the unfriendly actions taken by the United States, other foreign states and international organisations that sided with them, to establish a price cap on Russian oil and oil products, which is in violation of international law.”
On December 5, the EU and the Group of Seven advanced economies agreed to place a price cap of $60 on global purchases of seaborne Russian crude.
The ceiling aims to reduce Moscow’s oil and gas revenue, while maintaining adequate supplies of crude on the global energy market.
Deputy Prime Minister Alexander Novak was quoted as saying by the RIA news agency last week that Russia may cut its oil output by 500,000 barrels per day to 700,000 bpd in early 2023 as it responds to the price cap on its crude and oil products.
The news of the Russian ban only gave a “minor” boost to crude prices in the previous session as most countries being targeted have already stopped the majority of oil imports from the country, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“Russian crude is already trading below the $60 per barrel price cap, meaning that there is no direct implication on the Russian supply at least in the immediate future,” Ms Ozkardeskaya said.
“But an eventual decrease in Russian oil supply gives support to the oil bulls in the medium rub.”
Futures gained earlier this week in response to the blizzard that has battered the US and led to refinery closures in the oil-rich Texas Gulf Coast area and the cancellation of thousands of flights.
More than 1.8 million bpd of Texas’s oil-processing capacity has been disrupted by the freezing conditions, according to Bloomberg estimates.
The severe storm that hit North America disrupted the power supply in some areas, with about 250 million American and Canadian residents affected by the storm.