Oil Down On China's Woes As Relief Takes Hold In The Crude Market

But the looming Russian oil cap guarantees further volatility: File Image/Pixabay

Has demand destruction begun? It's still a point of analytical debate, but worrying signs caused  crude traders on Thursday to send oil prices downward, this time by over $3.00 per barrel.

West Texas Intermediate shed $3.53 to settle at $96.35 per barrel, while Brent fell $3.06 to settle at $103.86 per barrel.

The reason for the drop was reportedly two-fold: China's Covid cases are hovering at a two-month high, and for a country that upholds a draconian zero-tolerance policy this could mean further lockdowns – and no vehicular mobility.

This comes on the heels of earlier reports that U.S. gasoline consumption is not as robust as had been hoped during the peak summer driving season.

Ed Moya, senior market analyst at Oanda Corp., remarked,  "Exhaustion is settling in on the oil trade: oil is no longer the easiest trade on Wall Street and that has many traders abandoning their bullish bets."
 
Ironically, this comes when relief is arriving in the market from several fronts: Libya is restoring production with output rising above 700,000 barrels per day (bpd) after restrictions on exports were lifted; total output is expected to reach 1.2 million bpd within 10 days.

Additionally, retail fuel prices in the U.S. have fallen for 37 days straight, and gasoline's premium over WTI, which was more than $60 per barrel at one point in June, is now less than half that.

Plus, the operator of Nord Stream 1, a key gas pipeline that runs from Russia to Germany, said  Thursday it was in the process of resuming flows to Europe, and data revealed that flows indeed increased from zero to 29,284,591 kWh/h between 0600-0700 Central European Time Thursday.

Concerns had been rife that a complete shutdown of gas supplies via the pipeline could happen after it was closed earlier this month for maintenance.

Also on Thursday came the suggestion that the market could be guaranteed further volatility – and calamity – in December: that's when the long-planned cap on Russian oil, which critics say will merely cause the former Soviet Union to retaliate with energy sanctions of its own, is expected to be installed.

The news was delivered by deputy treasury secretary Wally Adeyemo, who said: "We are following on what the Europeans have done…they introduced the idea of looking to do a price cap but they also said that by December they plan to put in place their insurance ban.

"Our goal is to make sure that as that insurance ban is going into place, we're in a position where there is a price cap that can be joined on to that that is a global one that helps to drive down global energy prices and also allows Russian energy to flow into the marketplace."