Oil prices climb as E.U. price cap, OPEC decision, and easing of China’s Covid restrictions provide support
Oil futures traded higher on Monday, adding to last week’s gain, after a European Union ban on importing Russian seaborne crude and a price cap of $60 a barrel took effect Monday, while OPEC kept its production quotas unchanged at a Sunday meeting.
China also began relaxing Covid-19 restrictions, raising hopes its economy might revive and increase energy demand.
What are prices doing ?
West Texas Intermediate crude for January delivery
advanced by $2, or 2.5%
February Brent crude
the global benchmark, gained $1.90, or 2.2%, at $87.32 a barrel on ICE Futures Europe.
Back on Nymex, January gasoline
gained 5 cents, or 2%, to $2.34 a gallon while January heating oil
gained 5.5 cents, or 1.7%, to $3.2205 a gallon.
January natural gas
lost 6.3% to $5.88 per million British thermal units, adding to last week’s steep losses.
It is unclear how much Russian oil the two EU and G7 sanctions measures might remove from the global market. The world’s No. 2 oil producer has been able to reroute much, but not all, of its former European shipments to customers in India, China and Turkey.
See: Russian oil cap kicks in as western leaders try to pressure Putin over Ukraine
See also: What analysts think of the $60 price cap on Russia oil
On Sunday, the OPEC+ alliance of oil producers, including Russia, maintained their targets for shipping oil to the global economy. In October, the alliance opted to cut production by 2 million barrels per day starting in November, raising tensions with the U.S. and Western allies.
See: No OPEC+ oil shakeup as Russian price cap stirs uncertainty
“Oil prices are trading higher on Monday, even though OPEC did not ride to the rescue by slashing its production. Instead, some news about China relaxing its Covid restrictions may have helped paint a brighter picture for demand,” Marios Hadjikyriacos, a senior investment analyst at XM, said in a note to clients.
But some key players are waiting on the sidelines, according to Hadjikyriacos, to see how all this plays out.
“There is also an element of hesitation in energy markets, with several key players taking the sidelines to observe how the EU ban on Russian crude and the $60/barrel price cap of the G7 nations will impact prices.”
There is also hope that disruptions to manufacturing and trade will abate and raise energy demand as Chinese authorities lift some of the most onerous restrictions imposed to contain outbreaks of the coronavirus, while saying their “zero-COVID” strategy — which aims to isolate every infected person — is still in place.
See: China begins easing restrictions in Beijing and elsewhere