Oil prices dipped on Monday as the global fuel demand picture was clouded by COVID-19 limits in China and the possibility of future interest rate hikes in the US and Europe.
Brent crude fell $1.28, or 1.4%, to $91.56 a barrel by 0330 GMT, after closing 4.1% higher the previous day. After a 3.9% increase the previous session, US WTI crude was down $1.34 at $85.45 a barrel, or 1.5%.
Prices barely changed last week. Gains from a notional supply cut by the OPEC+ were offset by continuous lockdowns in China, the world’s largest crude importer.
Nonetheless, global oil prices may rise before the end of the year since supply is likely to tighten further when a European Union ban on Russian oil goes into effect on December 5.
The G-7 will impose a price ceiling on Russian oil to curtail Russia’s lucrative oil export revenue following its invasion of Ukraine in February. It will take steps to ensure that the oil continues to flow to developing countries.
Gulf Main Indices Rise as Oil Prices Rise
A nascent recovery of risk appetite to global stock markets and a rebound in oil prices helped lift key Gulf shares at the end of last week, albeit they remained vulnerable to rate hikes and concerns about demand prospects.
Oil prices increased around 4% on Friday, buoyed by real and threatened supply cutbacks. However, futures showed a second weekly fall on aggressive interest rate hikes, and China’s COVID-19 limitations hampered the demand outlook.
Russia has threatened to cut off all European energy supplies if Europe implements price ceilings. Last week’s announcement of a slight reduction in OPEC+ oil output projections further boosted prices.
Saudi Arabia’s benchmark index (.TASI) finished 0.9% higher, snapping a three-day losing streak, with luxury developer Retal Urban Development Company (4322. SE) up 2% and Al Rajhi Bank up 1.4%. According to Daniel Takieddine, CEO of MENA BDSwiss, the Qatari market could improve if energy costs remain unchanged.
Outside of the Gulf, Egypt’s blue-chip index closed 0.7% higher due to increased trade volumes. Elsewedy Electric, a provider of energy solutions, increased by 3.71%.
Crude Oil Price Changes in 2020–2022
According to the IEA, by May 2022, 3M BPD of Russian oil output, or nearly 3,3% of global output, could be removed from the global oil market as sanctions take effect and buyers avoid Russian exports. According to analysts, Russia exported around 4.8M BPD of oil to nations currently supporting sanctions against Russia. Russia might move some of these exports to India or China, which haven’t sanctioned Russia. However, this may take time and not entirely compensate for lost sales volumes.
Global events, particularly Russian government actions, have significantly impacted the price of Urals oil relative to Brent. For example, when Russia curtailed its oil output for export, loadings from Russia’s Baltic ports fell from 4,5M tons in June to 2.5M tons in July; the Urals traded at a premium of more than $.1 per barrel to Brent in June 2020.
Furthermore, greater price volatility has increased the cost of trading oil futures contracts for market participants. The two major crude oil futures contracts increased as volatility increased. The ICE raised the first margin requirement for nearby Brent futures contracts from $7,600 in January 2022 to $11,920 per contract in March.
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