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G7 shelves regular Russian oil cap reviews as prices soar – sources

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G7 shelves regular Russian oil cap reviews as prices soar - sources
© 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 dip on US interest rate jitters, Middle East uncertainty

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Investing.com– Oil prices fell Tuesday on concerns high U.S. interest rates will eat into demand this year, amid continued uncertainty in the Middle East. 

At 08:15 ET (12:15 GMT),  fell 1.8% to $82.17 a barrel, while fell 1.9% to $77.77 a barrel. 

US rate fears cloud demand outlook 

Fears of high-for-longer U.S. rates were a key point of pressure for crude markets, after a string of Fed officials warned of such a scenario amid sticky inflation.

Vice Chair Philip Jefferson said on Monday that it was too early to tell if the slowdown is “long lasting,” and Vice Chair Michael Barr noted that restrictive policy needs more time, dulling hopes for early cuts.

There are more Fed speakers to digest Tuesday, including Barr once more, as well as FOMC members Thomas Barkin, John Williams and Raphael Bostic, ahead of the release of the  of the Fed’s late-April meeting on Wednesday.

High rates are expected to dull activity in the largest economy in the world, likely hitting crude demand, while also limiting money for investment and economic growth, which usually support oil demand. 

The International Energy Agency last week trimmed its outlook for crude demand this year, citing concerns over weaker economic conditions due to pressure from interest rates. 

On the flip side, the Organization of Petroleum Exporting Countries maintained its demand forecast, citing strength in top exporter China. 

China has been a point of confidence for oil demand, especially as Beijing rolled out a string of stimulus measures in recent weeks to support growth. 

Political uncertainty in Middle East

Iranian President Ebrahim Raisi, who was seen as a successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash over the weekend, while there are concerns over the health of Saudi King Salman bin Abdulaziz after Crown Prince Mohammed Bin Salman deferred a trip to Japan.

While these events have not had an impact on supplies yet, they have created a degree of political uncertainty in two major oil-producing countries.

OPEC meeting awaited for more cues

Oil markets were also awaiting an in June, where the cartel, along with its allies including Russia, will discuss output policy, including whether to extend the voluntary supply cuts of 2.2 million barrels per day from mainly Saudi Arabia.

The group, known as OPEC+, could well extend some voluntary cuts past their initial June-end deadline if demand fails to pick up.

“As the market waits for clarity from OPEC+ on its output policy for the second half of the year, there are some signs of weakness in the market,” said analysts at ING, in a note.

“Refinery margins have been trending lower for some time, raising the prospect of cuts in refinery runs, particularly in Asia. In addition, the physical crude market is also weaker.” 

(Ambar Warrick contributed to this article.)

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Commodities

Copper prices hit record highs, here’s what Morgan Stanely sees as a bull case

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Investing.com– Copper prices are set to see some near-term volatility after surging to record highs in recent sessions, Morgan Stanley analysts said in a note, although the red metal is still expected to push higher this year. 

A mix of strong demand-supply fundamentals and outsized speculative trading drove stellar gains in over the past few sessions, putting prices at lifetime highs.

Bulls expect copper demand to increase in the coming months amid a greater global push into green energy and electrification, and that copper mines will be unable to meet this increased demand.

This notion was a key driver of copper gains, and also triggered a short squeeze on the Comex, which furthered copper’s rally. on the London Metal Exchange hit a record high of $11,101.50 a ton on Monday. 

But copper prices fell sharply from these records on Tuesday, with MS analysts stating that the red metal was set for some near-term volatility after the abrupt gains. 

Still, they expect the red metal to rally further in 2024, and presented a bull case of $13,125 a ton for LME copper, along with a base case of $10,500 a ton. 

MS analysts said the physical copper market was likely tighter than initially anticipated, especially amid low U.S. inventory and staggered China shipping. 

The growing popularity of artificial intelligence, and the industry’s large energy requirement is also expected to drive up copper demand. Copper plays a key role in electricity transmission infrastructure. 

“We remain bullish on copper as persistent supply challenges widen our deficit for 2024,which looks set to persist into 2025. Demand and narrative tailwinds from data centres/AI should also boost participation, with long positioning rising,” MS analysts wrote in a note.

China is the world’s biggest copper importer, and is expected to see an economic rebound in 2024 on sustained stimulus support from Beijing. Such a scenario is expected to push up the country’s appetite for copper, although weakness in the property market may limit its demand. 

 

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Gold prices fall from record highs as rate fears persist; copper retreats

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Investing.com– Gold prices fell in Asian trade on Tuesday, retreating from record highs as some easing uncertainty over Iran cooled safe haven demand for the yellow metal, while pressure from concerns over U.S. interest rates persisted. 

Among industrial metals, a rally in copper, to record highs, also reversed course on Tuesday amid some profit-taking, and as traders gauged just how much potential the red metal had this year. 

Gold surged to a record high on Monday, benefiting from increased safe haven demand as traders feared some geopolitical instability in the Middle East after Iran’s President was killed in a helicopter crash. But the immediate impact of his death remained unclear. 

fell 0.5% to $2,413.77 an ounce, while expiring in June fell 0.9% to $2,416.75 an ounce by 00:59 ET (04:59 GMT). Spot gold hit a record high of nearly $2,450 on Monday. 

Gold stalls as safe haven demand ebbs, rate fears persist

The lack of any major instability in the Middle East sapped safe haven demand for gold, leaving it more vulnerable to concerns over U.S. interest rates.

A string of Federal Reserve officials warned on Monday that the central bank needed much more convincing that inflation was easing before it could begin trimming interest rates. The central bank is likely to keep rates high for longer.

The firmed as markets now positioned for the of the Fed’s late-April meeting, due Wednesday, which in turn pressured broader metal prices and cut short a rally in prices.

High-for-long interest rates diminish the appeal of non-yielding assets such as gold by increasing the opportunity cost of investing in them.

Other precious metals also sank on Tuesday. fell 1.6% to $1,042.60 an ounce, while fell 2.5% to $31.628 an ounce. But both metals retained a bulk of their gains made through the past few sessions.

Copper comes off record highs

Copper prices retreated sharply from record highs made on Monday, as investors stepped back to see just how much potential the red metal had this year. 

Copper’s recent rally was sparked chiefly by a speculative frenzy over a potential supply deficit of the red metal, which in turn had caused a short squeeze on the Comex exchange and triggered even more gains. 

But these gains were seen cooling on Tuesday, with focus on whether copper shipments could be sourced in time to meet immediate demand. 

on the London Metal Exchange fell 1.3% to $10,825.0 a ton, after hitting a record high above $11,100 on Monday.

fell 1.1% to $5.0510 a pound, also retreating from record highs. 

 

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