Bloomberg oil fell 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.
The global benchmark is on course for a drop of more than 2% this week, as Brent traded below $86 a barrel. European diplomats remain locked in talks over how strict the cap should be, highlighting disagreements between member states. There have been signs of challenges to demand. Covid infections in China, the world's largest oil importer, have hit a record this week, prompting officials to step up the curbs. The Institute of International Finance forecast that the world economy will be as weak as it was in 2009 after the financial crisis in Ukraine.
Crude has declined this month, overturning the gains made in October after the Organization of Petroleum Exporting Countries and allies agreed to reduce production. As a sign of the group's position ahead of its meeting next month, Iraqi Oil Minister Hayyan Abdul Ghani gave support to the coalition and signaled that he will coordinate positions with Saudi Arabia.
Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai, said that Crude has been struggling with bearish factors since the past few sessions due to the recessionary fears and increase in China Covid cases. He said that the price cap on Russian oil between $65 and $70 won't have an impact as it is already trading at those levels.
Widely-watched differentials signal a weaker market, with WTI s prompt spread in contango, a pattern that points to ample near-term supply. The gap was 12 cents a barrel, compared to 80 cents in the opposite direction two weeks ago. Brent's prompt spread has narrowed to 10 cents a barrel in backwardation compared to $1.58 a fortnight ago.
The price-cap plan is part of the response of the EU and the Group of Seven to punish President Vladimir Putin for the invasion of Ukraine by reducing Moscow's revenue while allowing other states to continue imports. Putin said that the introduction of a cap by western countries will have a negative effect on the energy market.
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