Commodities
G7 shelves regular Russian oil cap reviews as prices soar – sources
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© Reuters. FILE PHOTO: Russian oil cargo Pure Point, carrying crude oil, is seen anchored at the port in Karachi, Pakistan June 13, 2023. REUTERS/Akhtar Soomro/File Photo
By Julia Payne
BRUSSELS (Reuters) – The G7 and allies have shelved regular reviews of the Russian oil price cap scheme, people familiar with the matter told Reuters, even though most Russian crude is trading above the limit because of a rally in global crude prices.
Russian producers have found ways to sell oil using fewer Western ships and insurance services, making it difficult for the West to enforce the existing price cap because the companies facilitating the trade are outside of their remit.
The Group of Seven (G7) countries along with the European Union and Australia imposed the price cap mechanism on Russian oil last December, followed by a cap on fuel from February. Initially, EU countries agreed to review the price cap every two months and to adjust it if necessary while the G7 would review “as appropriate” including “implementation and adherence.”
The G7 has not reviewed the cap since March, however, and four people familiar with G7 policies said the group had no immediate plans to look into adjusting the scheme.
“There were some talks in June or July to do a review, or at least talk about it, but it never formally happened,” one diplomatic source said.
The sources said that while some EU countries were keen for a review they said that there was little appetite from the United States and G7 members to make changes.
The sidelines of the upcoming U.N. General Assembly later this month could serve as an informal platform for talks on the cap.
The mechanism allows third countries to buy Russian fuel using Western ship insurance if there is proof the purchase does not exceed price limits of $60 per barrel for crude, $45 per barrel of heavy fuel and $100 per barrel of light fuel such as gasoline and diesel.
The idea was spearheaded by Washington to cut Moscow’s revenues amid its war on Ukraine while avoiding market disruptions as a result of an EU ban on Russian oil.
Benchmark are trading at their highest this year at above $90 a barrel, raising the value of global crude, including Russian Urals.
Russia’s finance ministry said the average price on its flagship crude grade Urals has recovered to $74 a barrel on average in August – well above the $60 a barrel cap – and up from an average $56 in the first six months of the year.
Russia was forced to cut exports of oil and products immediately after the price cap imposition as it struggled to find enough ships to transport all of its output.
However, the country has managed to move most of its exports into the hands of domestic or non-Western foreign shippers, which do not require Western insurance coverage.
Reuters calculated that at least 40 middlemen, including companies with no prior record of involvement in the business, handled at least half of Russia’s overall crude and refined products exports between March and June.
While mostly “dark fleet” of tankers with murky ownership was being now used to transport Russian crude, Western ships were still involved in moving products since those were harder to police, an industry source said.
According to LSEG data, Russian crude has been trading above the cap since mid-July and is currently being traded at around $67 a barrel at Russian crude terminals. Russian refined products such as fuel oil and diesel have also surpassed their caps.
A U.S. Treasury official said this week the cap was still effective as it had helped cut Russian revenues. He said the group would stay nimble but added there was no plan for an immediate revision.
Commodities
Oil prices settle lower after weak August jobs report adds to demand concerns
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Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
Commodities
Goldman Sachs expects OPEC+ production increases to start in December
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(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Commodities
Citi, Bank of America see oil prices potentially going to $60
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Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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