Upcoming EU ban on Russian oil is putting additional upward pressure on prices
Oil prices rebounded on Tuesday after losing almost $4 a barrel during the previous trading session ahead of the OPEC+ meeting on Dec. 4, when OPEC+ producers will decide on their output strategy for January onwards in the face of declining Chinese demand.
International benchmark Brent crude traded at $85.53 per barrel at 10.08 a.m. local time (0708 GMT), up 1.95% from the closing price of $83.89 a barrel in the previous trading session.
At the same time, American benchmark West Texas Intermediate (WTI) traded at $78.62 per barrel, a 1.78% gain after the previous session closed at $77.24 a barrel.
Both benchmarks fluctuated dramatically, with Brent and WTI losing more than 4% and 5%, respectively, as a result of growing COVID protests in China, which are expected to dampen demand in the world’s top oil-importing country.
The latest wave of infections has resulted in varying degrees of lockdowns and movement restrictions being imposed in several of China’s largest cities, including Guangzhou, Chongqing, and Beijing.
Protests against the strict “zero-COVID” policy,which includes immediate lockdowns, widespread testing, intensive contact tracing, and quarantines to eliminate infections as soon as they emerge, are also wreaking havoc on market sentiment and driving down prices.
However, prices clawed back some gains on Tuesday after reports that major oil producers in the OPEC+ group are considering production cuts over declining demand in China.
Investors are now waiting for the OPEC+ meeting on Dec. 4, when producers are expected to decide on production for January.
Raising further supply worries, the EU is poised to ban Russian oil exports on Dec. 5 and oil products on Feb. 5.
Furthermore, the decision of the G7 plan to impose a cap of $65–$70 a barrel on Russian seaborne oil has not yet been officially taken.
Some EU countries, led by Poland, argue that a price cap at this level would have no effect on Russia. They claim that Russia has already found oil consumers in Asia, specifically India and China, who have been incentivized by discounts at prices between $60 and $65 a barrel. Poland emphasized that the G7’s proposed $65 limit will “not hurt” Russia and suggested that a price cap of around $30 per barrel would be more beneficial.