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Crude marginally softer early Thu in Asia, awaits fresh cues - Dec. 1, 2022
Market shrugs off Russia price cap even as EU struggles to nail it down - Nov. 25, 2022
The Russia price cap drama eclipsed everything else in the oil markets this week.
The market is still waiting to see what level the EU agrees after some members opposed the range of $65-70/barrel that was discussed this week as too high, while others were against going any lower. The bloc needs all 27 members to sign off on the cap as well as on implementation measures, including how it will be reviewed and revised in line with international crude price movements.
The EU has little choice but to continue compounding its first few mistakes in the energy crisis triggered by the Ukraine war with new ones.
The Russia oil price cap plan was doomed to fail, and that’s exactly where it is heading. Given the range under discussion, clearly it won’t slash Russian oil revenues.
But the entire exercise has almost become irrelevant, which is a good thing for market stability.
The price cap has not garnered the support of major Russian crude buyers China and India, but the sellers as well as the buyers are expected to be able to find shipping and insurance alternatives to the EU and G7 P&I Clubs and maritime services companies.
Contrary to earlier fears of supply disruptions and price spikes due to the December 5 EU import and maritime bans against Russia, crude has been on a downward spiral, hitting fresh two-month lows this week.
Maybe the controversial Wall Street Journal reports about OPEC+ discussing a supply boost also had something to do with it? If that is the case, as we suspect, crude may now be in oversold territory (Brent was trading below $85 as we closed this report), setting the stage for a modest rebound in the coming days and weeks.
But as long as Chinese demand remains crushed by widening Covid controls and the market is sanguine about Russia managing to reroute its crude flows away from the EU – price cap or no price cap -- the danger of crude prices turning red hot again has retreated.
