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G7 ‘ceiling’ for Russian oil drags commodity markets to lows for the year

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Russia had threatened to boycott buyers who adhere to the oil price “ceiling” (Image: Sputnik/Konstantin Zavrazhin/Pool via REUTERS)

It’s not easy for oil traders to escape bearish pressures this week.

On Monday (21), the markets narrowly escaped a drop of 5%, amid rumors that OPEC+ would reverse in 500,000 barrels the cut announced in October. The almost miraculous recovery only occurred after a speech by the Saudi Arabian Minister of Energy, who denied the hypothesis.

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Today, the markets were not so lucky and confirmed losses greater than 4%with the imminent approval of a “ceiling” for oil prices originating from Russia and exported by sea.

After the end of the trading session, futures contracts WTI and Brent were valued, respectively, at US$ 77/barrel and US$ 84/barrel.

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With the result of the day, both references transit close to the lows of the year, registered in January and September.

Ceiling penalizes Russia, but puts more supply on the market

After a long time of negotiation, the member countries of the G7 — which unites the seven largest economies in the world — are expected to present a new sanction on Russian oil, seen as the main source of funding for the military effort to Moscow in Ukraine.

The sanction consists of blocking the purchase of Russian oil at a fixed price and must be presented on December 5; on the same date, the OPEC meeting takes place.

As reported by Reuters, European Union members work with a ceiling of between US$ 65-70, but there is still disagreement among Europeans for different reasons.

Poland and the Baltic countries, which within the EU assume the most anti-Russian positions, want the cap to be placed on production cost. Hungary, Putin’s only ally within the HUHdoes not believe that the measure will contribute to the resolution of the conflict.

A cap on Russian oil exported by sea would allow the country to resume trading with trading partners in the Westernexempting insurers and carriers from paying the economic and administrative penalties in force.

On previous occasions, Putin has said that his country would cut down anyone who adopted the sanction of the G7🇧🇷

Despite the Russian leader’s bravado, US Treasury officials do not believe that Moscow will stop oil supplies to other countries because of the measure. The move could send oil back on a bullish path, but it would risk damaging the pace of domestic production.

Another point addressed is that the ceiling between US$ 65-70 still guarantees Moscow the ability to collect surpluses in the commodity trade. This is because the ceiling is at a level above the current level of Russian crude oil, traded between US$ 63-65/barrel.

The reintroduction of Russian oil on the world circuit brings more supply to a market with consistent demand problems.

In addition to the severe wave of Covid-19 in Chinawhich makes it difficult for the world’s largest buyer of fuel to reopen, investors are again concerned about the OECD report released this Wednesday, which points to a broad slowdown in developed economies in 2023, corroborating the pressure of monetary tightening exercised by banks central to growth.

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Source: Moneytimes

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