Oil set for third weekly loss on price-cap impasse, demand fears

Oil headed for a third weekly loss as the European Union weighed a higher-than-expected price cap on Russian crude and slowdown concerns threatened the demand outlook.

Brent was steady below $86 a barrel, putting the global benchmark on course for a drop of almost 3 per cent this week. European diplomats remain locked in talks over how strict the cap should be, highlighting disagreements between member states. Negotiations could resume Friday but may also slip beyond that.

Signs of challenges to demand have been accumulating. In China, the world’s largest oil importer, daily Covid infections hit a record this week, prompting officials to step up curbs.

The Institute of International Finance, meanwhile, forecast that the world economy will be as weak next year as it was in 2009 after the financial crisis as the crisis in Ukraine drags on.

Crude has declined this month, overturning the gains made in October after the Organization of Petroleum Exporting Countries and allies agreed to reduce production. In a sign of the group’s stance ahead of its meeting next month, Iraqi oil minister Hayyan Abdul Ghani gave support to the coalition and signaled that he’ll co-ordinate positions with Saudi Arabia.

“Crude has been grappling with bearish factors since past few sessions amid recessionary fears and increase in China Covid cases,” said Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai. “The price cap on Russian oil between $65 to $70 won’t have much of an impact” as it’s already trading at those levels, he added.

Widely-watched differentials are signaling a weaker market, with WTI’s prompt spread in contango, a pattern pointing to ample near-term supply. The gap was 11 cents a barrel, compared with 80 cents in the opposite, bullish backwardated structure two weeks ago.

Brent’s prompt spread has narrowed to 7 cents a barrel in backwardation versus $1.78 a month ago.