Oil Continues Downward Plunge Despite China Reforms, Keystone Outage

Meanwhile, Russia reiterates that price cap is of minimal concern: File Image/Pixabay

After surging on news of the Keystone Pipeline being shut down due to a leak, oil prices on Thursday resumed their downward plummet and settled to a fresh one year low, as traders continued to display little faith in the beleaguered commodity.

The leak of the pipeline, which can transport over 600,000 barrels per day (bpd) of crude from Canada into the U.S., was detected in Nebraska; no timeline has been given for restarting the 2,700 mile system, and it wasn't clear how much oil had leaked.

Ole Hansen, head of commodities strategy at Saxo Bank, said, "Short-term technical traders are in control as the overall level of participation continues to fall ahead of year-end; it has been a very difficult year across markets and an early closing of books seems to be unfolding."

West Texas Intermediate slid 55 cents to settle at $71.46 per barrel, while Brent dropped $1.02 to settle at $76.15 per barrel.

However, analysts pointed out that the pace of the selloff in recent weeks means that Brent is now oversold and the market rout could be nearing an end.

Limiting losses on Thursday was China's previous announcement that it would relax its zero-tolerance Covid infection policy that has caused economic bedlam across the country: the changes are said to be the most sweeping since the pandemic began and include digital health passes (region-specific apps that track movement and testing history) no longer being required for access to most buildings or public transport.

Still, Capital Economics warned in a note that "The transition to living with the virus is likely to take time."

In related oil news, Pavel Sorokin, first deputy energy minister for Russia, dismissed the waning notion that the recently imposed price cap from the European Union and Group of Seven nations will throw his country into economic turmoil, as originally intended.

He said, "Most markets are available for our goods at adequate market-based principles," and any volatility in oil production "won't be higher than the fluctuations in spring."

Sorokin added, "Recession risks may add volatility, but lack of oil-supply overhang on the global market and a clear deficit of some oil products, for example diesel, are supporting prices."