After the Group of Seven agreed on a $60 per barrel price cap last Friday, the new measure came into effect this week amidst repeated pledges from Russia not to sell any oil to countries that are participating in the price-capping.
Oil prices have been in freefall this week with WTI back to trading slightly above $75 per barrel, as markets remain unimpressed by the G7 oil price cap that has not led to any anticipated supply shortage. Both the EU and the United States have agreed to a 45-day transition period when parties can still legally purchase crude, provided it is delivered to the end destination by 19 January 2023.
In addition, physical traders that usually wait weeks until they learn the final price have raised their reservations, saying the price cap is impelling them to take unnecessary risks without having any impact on Brent or WTI quotes. Most oil cargoes across the planet are priced on a forward and floating basis, implying that if G7 buyers would want to make sure they comply with the price cap, they would need to buy at a fixed price, a rarity in the markets.
News of economic prowess rarely provokes a massive drop in oil prices, however, this week’s robust U.S. economic data, with both labor figures and industry PMI coming in well above expectations, helped to achieve the opposite. Apart from the Russian oil price cap, Chinese demand, and others, the prospect of the U.S. maintaining higher interest rates for longer is slowly becoming a mainstream idea as inflationary pressures weigh on mid-to-long-term market sentiment.
Saudi Arabia edges closer to China. Saudi Crown Prince Mohammed bin Salman will host China’s President Xi Jinping this week, indicating Riyadh is ready to diversify its key partnerships at a historic low point in Saudi-U.S. relations and sees Beijing as a crucial economic partner in diversifying away from oil and gas.
U.S. oil major Chevron is expected to take over its Petropiar joint venture with Venezuela’s national oil company PDVSA this week, with output potentially rising to 200,000 b/d within a year. U.S. oil producer EQT said it received a request from the Federal Trade Commission in connection with its $5.2 billion purchase of THQ Appalachia, with the antitrust regulator looking into market concentration. The private equity firm Carlyle Group is reportedly in talks for a multi-billion deal with Austrian oil and gas company OMV that would see it take over most of the latter’s upstream assets.