Oil fell the most in more than two weeks as broader equity markets collapsed and
risk-averse investors pared crude positions ahead of the end of the year.
West Texas Intermediate futures shed 3.8% to settle below $77 a barrel after earlier
topping $82 on Monday. Stronger-than-expected US economic data fueled
speculation that the Federal Reserve would keep its policy tight to fight inflation,
sending a guage of the US dollar higher. Early in the session, WTI gained as much
3.4% gain after China announced further easing of Covid restrictions in some of its
largest cities. Monday also marked the beginning of a European Union and Group of
Seven cap on Russia crude prices at $60 a barrel
The noise surrounding headlines is keeping traders from engaging in the market,
said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management.
“Many have decided to tune out altogether. Volumes are light and positioning is
decimated as it seems prudent to wait until 2023.”
Oil has swung inside of a $10 range in recent weeks as markets weigh restrictions
on Russian supply and China’s gradual reopening against the risk of an economic
slowdown in the US and other parts of the world struggling to contain inflation.
Futures holdings continue to plunge as the year draws to a close — open interest in
the main oil contracts is the lowest since 2015 — indicating that traders have pared
back positions amid a number of risks, including the future of Russian supply.
The price-cap deal for Russian crude was months in the making as the US
expressed concern that the EU’s bar on Russia’s oil and related insurance and
financing services would lead to a damaging price spike. Still, the level now agreed
upon is about $10 above Russia’s key Urals grade, suggesting its impact on those
flows may be limited. In Asia, however, the ceiling is below the price for ESPO crude,
which is loaded from Russia’s far east.
• WTI for January delivery fell $3.05 to settle at $76.93 a barrel in New York.
• Brent for February dropped $2.89 to $82.68 a barrel.
For now, traders are waiting to judge the long-term impact of the sanctions, and if
shipping and insurance restrictions will obstruct flows. Although some ships are
stuck near Turkey in part due to the changes, there has been no widespread