Oil Prices Drop Near Lowest Levels Since January

Oil prices fell on Monday with Brent crude falling near its lowest level since January 4th, 2022.

The world’s most traded commodity fell as low as $80.78 as concerns about the outlook for fuel demand added to the downward trend that initially spiked last week. It is currently on track to post a third-straight weekly loss, with prices driven down by slowing demand in China amid COVID-19 outbreaks in the world’s second-largest crude-importing economy.

Currently, Brent crude is down $4.15, or 4 percent at $80.7 a barrel. The US West Texas Intermediate (WTI) crude lost $2.75, or 3.50 percent, to sit at $73.52 per barrel after markets resumed trade in red on Monday.

With rising concerns about Chinese demand and a lack of clear signals from oil producers to cut output further, bearish sentiment is rising in the oil market. Unless OPEC+ agrees to further reduce production quotas or the US moves to replenish its strategic petroleum reserves, oil prices may fall further.

The trading range for crude is expected to fall to $65-$75, with near-term market sentiments expected to remain extremely volatile depending on the outcome of the OPEC+ meeting and the Russian oil price cap. In this regard, the G7 countries are considering capping Russian seaborne oil at $65-$70 per barrel, though European Union partner countries have not yet agreed on a price

Because the world’s major shipping and insurance companies are based in G7 countries, the price cap would make it extremely difficult for Moscow to sell its oil – its most valuable export, accounting for about 10 percent of global supply – at a higher price.

The price cap is set to go into effect on December 5, when the EU ban on Russian crude goes live for the very first time. Interestingly, Ukrainian President Volodymyr Zelensky said yesterday that he wanted to see Russian crude drop down to the level of $30-$40, “so Russia feels them (the sanctions)”.

Excluding his thoughts on the matter, the idea of the cap is to prohibit the shipping, insurance, and reinsurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than the price set by the G7 and its allies.

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