Oil Pares Weekly Drop As EU Strives For Price-Cap Compromise
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(Bloomberg) -- Oil pared a third weekly loss as the European Union weighed a higher-than-expected price cap on Russian crude and concerns about an economic slowdown threaten the demand outlook.
Brent traded near $86 a barrel, putting the global benchmark on course for a small decline at the end of a volatile week, with trading volumes thin around a US holiday. European diplomats remain locked in talks over how strict the cap should be, highlighting disagreements between member states. Negotiations are set to resume Friday evening.
The cap talks come before an OPEC+ meeting early next month. Iraq and Saudi Arabia’s oil ministers met on Thursday and said the group could take further measures if required to achieve stability in the market.
Crude has declined this month, overturning the gains made in October after the Organization of Petroleum Exporting Countries and allies agreed to reduce production, with signs of challenges to demand accumulating. In China, the world’s largest oil importer, daily Covid infections hit a record this week, prompting tighter curbs. The Asian nation’s central bank on Friday boosted economic stimulus, announcing plans for a further cut in the amount of cash lenders must hold in reserve.
“Our balances point to slight oversupply until the end of 1Q,” Morgan Stanley analysts including Martijn Rats and Amy Sergeant said in a note to clients. “For now, the oil market is faced with macroeconomic headwinds.”
The price-cap plan forms part of the efforts by the EU and the Group of Seven to punish President Vladimir Putin for the invasion of Ukraine by reducing Moscow’s revenue, while at the same time allowing other states to continue imports. The introduction of a cap by western countries will “with high probability” have a negative effect on the energy market, Putin said.
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