Oil Ekes Out Minuscule Gains On The Aftermath Of Saudi Hard Line

Meanwhile, a neutered Russian price cap scheme is unveiled: File Image/Pixabay

Oil prices on Tuesday experienced minimal gains after another choppy day of trading, this time due to the lingering after effects of Saudi Arabia stating that the Organization of the Petroleum Exporting Countries (OPEC) would maintain its output cuts and would only reconsider its policy if further steps to balance the market were warranted.

West Texas Intermediate rose by 35 cents to $81.30 per barrel, while Brent rose 91 cents to $88.36 per barrel.

Also on Tuesday and as many analysts had predicted, the European Union  unveiled a neutered version of its price cap proposal against Russia by adding a 45-day transition to the introduction of the cap, according  to a document seen by media.

The grace period would apply to oil loaded before Dec. 5 (the starting date of the oil sanctions) and unloaded by Jan. 19; further, the cap would ban companies from providing shipping and services, such as insurance, brokering and financial assistance, needed to transport Russian oil unless the oil is sold below the agreed threshold.

Previous discussion had set the cap somewhere between $40 and $60 per barrel, but it is now rumoured that it will be slightly above that.

However, it is unclear whether these and other concessions will cause Russia to deviate from a course of retaliation, outlined in the previous session by deputy prime minister Alexander Novak who said the former Soviet Union won't supply crude or oil products to nations implementing the cap; instead, it will redirect its supply to "market-oriented partners" or will slash production.

Accompanying the overall market uncertainly was more bearish sentiment on Tuesday, this time delivered by Goldman Sachs, which cut its oil price forecast by $10 to $100 per barrel.

The bank cited the lockdowns in China as posing a threat to demand (the latest lockdown news being the government shutting parks and museums across the country), and analysts also cited the increased exports of Russian oil before the European Union embargo goes into effect next month as another reason for the forecast revision.

For the record, the Saudi Arabia-based International Energy Forum believes Russian oil supply could drop by up to 3 million barrels daily because of the embargo.

Not all was gloom on Tuesday, however: late in the session the American Petroleum Institute released data showing that domestic crude inventories enjoyed yet another larger than expected draw, of 4.8 million barrels after dropping 5.8 million barrels in the week prior (analysts anticipated a 2.2 million barrel draw).

The API noted that while U.S. crude inventories grew by roughly 21 million barrels so far this year, crude stored in the nation's Strategic Petroleum Reserves sunk by nearly 10 times that figure so far in 2022, by 203 million barrels.