Oil prices weaken despite Russia move, China Covid curb ease

(Alliance News) - Brent rose as high as USD138 a barrel this year, though it may struggle to reach those dizzying heights again as North Sea benchmark's value declined on Wednesday, despite a move by Russia to limit sales.

Russia banned oil sales to countries and companies that comply with a price cap agreed by Western countries in response to Moscow's offensive in Ukraine. 

"The supply of Russian oil and oil products to foreign legal entities and individuals is prohibited if the contracts for these supplies directly or indirectly" are using a price cap, the presidential decree said.

The decree will be in effect from February 1 until July 1.

However, Germany on Wednesday shrugged off Russia's ban on oil sales to countries and companies that comply with a price cap agreed by Western allies, saying it has "no practical significance".

A barrel of Brent fetched USD82.63 on Wednesday afternoon London time. It had traded as high as USD86.06 on Tuesday.

The price ceiling of USD60 per barrel agreed by the EU, G7 and Australia came into force in early December and seeks to restrict Russia's revenue while making sure Moscow keeps supplying the global market.

"Given that the Russian response to the price cap was primarily expected, oil traders quickly pivoted back to the uncertainties around the China reopening story while catching a bit of a downdraft from inflation and recession concerns that will likely remain indefinitely on the back burner," SPI Asset Management analyst Stephen Innes commented.

"Oil prices fell as traders digested the latest high-frequency mobility data in December, indicating weaker growth momentum during the frontloaded "exit wave" on the back of surging infections. So there remain significant uncertainties regarding how household mobility reacts to the large "exit wave" of Covid infections in the near term and how they behave in the post-Covid regime later next year."

In a snap move late Monday, China said from January 8 inbound travellers would no longer be required to quarantine upon arrival, in a further unwinding of hardline Covid-19 controls that had torpedoed its economy and sparked nationwide protests.

China has largely kept itself closed off from the world since March 2020, shortly after Covid-19 first emerged.

"Oil bulls" could find some support looking ahead, despite a price decline on Wednesday, Swissquote analyst Ipek Ozkardeskaya commented.

"An eventual decrease in Russian oil supply gives support to the oil bulls' in the medium rub. Other factors like Chinese reopening, and the cold weather in America should also help throw a floor under a further selloff in oil, and even encourage a rise above the 50-displaced moving average, and toward the USD88 per barrel target."

By Eric Cunha, Alliance News news editor

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