Cap Negotiation Woes Keep Oil Prices Down As China Continues It Zero Tolerance Lockdowns

by Ship & Bunker News Team
Thursday November 24, 2022

Oil prices remained largely unchanged Thursday as the U.S. entered its Thanksgiving Day weekend and analysts everywhere maintained  their bearish mood, stoked by the watered down proposed price cap against Russia, China continuing to lockdown its cities due to Covid, and overall signs of weakening demand.

West Texas Intermediate rose 3 cents to $77.97 per barrel as of 2:16 p.m. in New York (prices didn't settle Thursday due to Thanksgiving); Brent declined 7 cents at $85.34 per barrel.

According to people familiar with the matter, European Union delegates required more time beyond Thursday to decide how strict the Russian oil cap should be, after stating that seaborne exports should be capped at $65 to $70 per barrel, well above the former Soviet Union's cost of production.

For his part, Bart Melek, global head of commodity market strategy at TD Securities, said the cap talks were "another catalyst that served to get prices lower over the last little while," but he added he was fairly bullish on oil despite the headwinds.

Keshav Lohiya, founder of consultant Oilytics, argued that "A static price in general just doesn't work: they're trying to have the best of both worlds….either you depress Russian oil to zero, which global oil markets do not want, or you let Russian oil flow."

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

Especially frustrated by the proposed cap was Kostas Skrekas, environment and energy minister for Greece; he told CNBC that "A price cap at the levels that the commission is proposing is not in fact a price cap: [a] price cap at 275 euro is not a price cap, nobody can stand buying gas at this expensive price for a long time…we surely believe that the price cap below 200 euro, between 150 and 200 euro would be more realistic."

Poland, Greece, Belgium, and Spain are among the nations supporting the cap; the Netherlands and Germany remain skeptical about the benefits of the scheme.

For the record, the war between Russia and Ukraine hit the 9 month mark on Thursday, with no sign that the latter is caving into repeated missile strikes against its energy system (shortages were cut to below 50 percent as repairs were made as quickly as possible, and water had been restored to Kyiv). 

Meanwhile, the Chinese communist party continued its draconian (and hopeless, according to many health officials) zero tolerance infection policy, ordering more lockdowns and mobility curbs as virus cases approached 30,000.