Oil prices fell more than $2 a barrel on Wednesday as the Group of Seven (G7) countries considered a Russian oil price cap above current crude quality.
Brent crude futures fell $2.82, or 3.19%, to $85.54 a barrel as of 1450 GMT, while U.S. West Texas Intermediate (WTI) crude futures ) fell $2.62, or 3.24%, to $78.33 a barrel.
Both contracts fell $3 a barrel after rising more than $1 a barrel earlier in the session, “following reports that the G7 price cap on Russian oil may be higher that it is currently trading,” said Giovanni Staunovo. , commodity analyst at UBS.
The G7 countries are considering a price cap for Russian maritime oil in the range of $65 to $70 a barrel, according to a European official on Wednesday.
Meanwhile, Urals crude delivered to northwest Europe is trading around $62-63 a barrel, though it’s higher in the Mediterranean at around $67-68 a barrel, according to reports. data from Refinitiv.
Because production costs are estimated at around $20 a barrel, the cap would still make it profitable for Russia to sell its oil and thus avoid a supply shortage in the world market.
A senior US Treasury official said on Tuesday that the price cap would likely be adjusted several times a year.
The news added to demand concerns over major crude oil importer China, which is grappling with a rise in COVID-19 cases, with Shanghai tightening rules on Tuesday evening.
The OECD economic outlook which predicts a deceleration in global economic expansion next year has also added to the pressure.
“On the bright side, the OECD does not see a global recession and that may have helped oil prices and stocks strengthen further,” said analyst Tamas Varga of PVM Oil Associates.
The market is also awaiting the minutes of the U.S. Federal Reserve’s November policy meeting scheduled for 7:00 p.m. GMT for clues on a possible economic contraction and further rate hikes, Varga said.
The price decline was limited by a decline in U.S. crude inventories, which fell about 4.8 million barrels for the week ended Nov. 18, according to data from the American Petroleum Institute, according to market sources.