Oil muted as price cap proposal eases supply concerns

  • G7 Russian oil price ceiling could be above current trading levels
  • EIA gasoline inventory data shows higher-than-expected production volume
  • China’s COVID-19 controls are tightening

Nov 24 (Reuters) – Benchmark Brent crude fell slightly on Thursday, while West Texas Intermediate (WTI) crude held steady and hovered within sight of two-month lows as the level of a proposed G7 ceiling on the price of Russian crude raised doubts about how much it would limit supply.

A larger-than-expected increase in U.S. gasoline inventories and expanding COVID-19 containment in China also added downward pressure to oil prices.

Brent crude futures were down 29 cents, or 0.3%, at $85.12 a barrel by 15:15 CET (2015 GMT), while U.S. WTI crude futures were up 2 cents at $77.96.

Trading volumes were light due to the Thanksgiving holiday in the United States.

Both benchmarks fell more than 3% on Wednesday on reports that a planned Russian oil price cap could be above current market levels.

European Union governments remained divided over what level to cap Russian oil prices to limit Moscow’s ability to pay for its war in Ukraine without causing a shock to global oil supplies, with further talks possible on Friday if positions converge. Read more

The G7 group of countries is looking at capping Russian offshore oil at $65 to $70 a barrel, a European official said, although European Union governments have yet to agree on a price.

A higher price ceiling could make it attractive for Russia to continue selling its oil, reducing the risk of a supply shortage on global oil markets.

Some Indian refiners are paying the equivalent of a discount of around $25 to $35 a barrel on international benchmark Brent crude for Russian Urals crude, two sources said. The Urals are Russia’s main export.

“The Russian price cap is another catalyst that has served to lower prices recently,” said Bart Melek, global head of commodity market strategy at TD Securities, adding that despite the headwinds, he is relatively bullish on oil.

Oil prices also came under pressure after the Energy Information Administration (EIA) said on Wednesday that US gasoline and distillate inventories rose substantially last week.

However, crude oil (USOILC=ECI) inventories fell 3.7 million barrels to 431.7 million barrels in the week to Nov. 18, compared with expectations for a 1.1 million barrel decline in a Reuters poll of analysts.

China on Wednesday reported the highest daily number of COVID-19 cases since the pandemic began nearly three years ago. Local authorities have tightened controls to stamp out outbreaks, adding to investor concerns about the economy and fuel demand.

Report by Ahmad Ghaddar; Additional reporting by Nia Williams in British Columbia, Ahmad Ghaddar in London, Yuka Obayashi in Tokyo and Muyu Xu in Singapore; Editing by Marguerita Choy, Mark Potter and Daniel Wallis

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