By Adedapo Adesanya
The oil market fell more than 4 per cent on Wednesday, with Brent futures falling by $3.47 or 3.9 per cent to $84.89 a barrel, and the United States West Texas Intermediate crude declining by $3.32 or 4.1 per cent to $77.63 per barrel, as the Group of Seven (G7) nations considered a price cap on Russian oil above the current market level.
G7 nations are looking at a price cap on Russian seaborne oil in the range of $65-$70 per barrel, according to a European official on Wednesday.
Reuters reported that ambassadors from the 27 EU countries are discussing the G7 proposal with the aim of reaching a common position by the end of the day. Views in the EU are split, with some pushing for a much lower price cap and others arguing for a higher one.
According to an unnamed diplomat cited by the news agency, “The G7 apparently is looking at a $65-70 per barrel bandwidth.
“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground.”
The diplomat also revealed that EU countries that have large shipping industries, like Greece, Cyprus and Malta, have raised technical issues that are likely to be overcome.
He added that the only two countries outrightly opposed the cap during the ambassadors’ discussions were Poland and Hungary.
This happened even after the US Energy Information Administration (EIA) reported inventories of oil had shed 3.7 million barrels over the week of November 18, in contrast to a decline of 5.4 million barrels for the previous week and an estimated draw of 4.8 million barrels reported by the American Petroleum Institute for the week to November 18.
Amid the latest slump in oil prices triggered by expectations of sluggish demand growth in China prompted by another flare-up of COVID-19, the EIA said that at 431.7 million barrels, US crude oil inventories were 5 per cent below the five-year seasonal average.
Pressure also came from weakening demand from top crude oil importer China, which has been grappling with a surge in COVID-19 cases, with Shanghai tightening rules.
Further pressure came from an OECD economic outlook anticipating a deceleration in global economic expansion next year.
The market will also await the minutes from the US Federal Reserve’s November policy meeting due at for clues on possible economic contraction and further rate hikes.
Modupe Gbadeyanka