Crude Oil Prices Continue to Struggle Amid Russia and China Woes
Shane Neagle | Nov 25, 2022 18:56
Crude oil prices hit 10-month lows this week after Group of Seven (G7) member countries proposed a high price cap on Russian oil, easing concerns over supply constraints. Crude prices were also pushed down by a bigger-than-anticipated increase in U.S. gasoline inventories, as well as continued concerns over global demand for oil amid COVID-related restrictions in China.
The latest drop in oil prices came as an extension to Wednesday's declines when Brent and WTI benchmarks plummeted over 3% on reports that G7 is considering a price cap on Russian oil greater than current market prices.
Fundamentals Point Toward More Losses/h2
G7 proposed a cap on Russian seaborne oil of $65-$70 a barrel, however, European Union (EU) members are yet to reach an agreement on a price. If approved, the price cap could encourage Russia to keep selling its oil and reduce the likelihood of a supply crunch in oil markets. EU governments are set to resume discussions on Thursday or Friday, EU diplomats said.
"If the EU agrees to an oil price cap of $65/$70/bbl this week, we see downside risks to our oil price forecast of $95/bbl this quarter," demand outlook for 2022 and 2023 by 0.1 million barrels per day (bpd), further weighing on crude prices.
The U.S. dollar also rose against a basket of currencies earlier this week, as investors turned to the safe-haven greenback due to the faltering global economic outlook following the latest COVID restrictions in China.
The greenback took another beating this week after the latest Fed minutes suggested that the U.S. central bank is more likely to slow the pace of interest rate hikes in December. The greenback fell over 1% on the Fed minutes data but capped further losses Thursday.
Summary/h2
Crude oil remains a popular alternative investment but is trading under continued pressure after G7 member states proposed a high price cap on Russian oil. Moreover, the market has growing concerns over demand from China given continued lockdowns to curb new COVID infections. This week’s low of $75.30 in crude oil prices marks the lowest level seen since January this year.
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