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Oil erased its Jan rally on Fri after crude prices posted their first weekly loss in 3 weeks and the second one for the month on reports of a surfeit of unexpected Russian supply headed for the market and signs that U.S. economic concerns were as important as bullish optimism over Chinese oil demand.
Brent crude for Mar delivery finished down almost 1% at USD86.66. Brent fell 1.1% on the week after rallying almost 12% over 2 previous weeks. For all of Jan, the global crude benchmark rose less than 1%. WTI crude for Mar settled down 1.6% at $79.68 per barrel. For the week, WTI fell 2.5% after a cumulative 11% rally in 2 previous weeks. For the month, WTI fell 1%. It was a 3rd consecutive month in the red for WTI, after a 0.1% slide in Dec and near 7% slump in Nov.
Fri's slump in crude prices came amid a Reuters report that oil loadings from Russia's Baltic ports were set to rise by 50% this month from Dec. The surge comes as sellers try to meet strong demand in Asia and benefit from rising global energy prices, traders said and Reuters calculations showed.
Bets that Chinese demand will help create record consumption of oil this year - despite an explosion of COVID infections forecast - were offset by the notion that U.S. inflation remained uncomfortably high.
The Personal Consumption Expenditures, or PCE, Index grew 5% in the year to Dec, versus an annual expansion of 6.8% in Jun, data compared with historical references showed. Core PCE, a reading of the index that strips out volatile food and energy prices, was up 4.4% in the 12 months to Dec versus 4.8% during the year to Jun.
Both of the headline and core inflation readings for Dec came in as forecast by Wall Street economists, who largely lauded the Fed's efforts in curbing inflation with aggressive rate hikes over the past 10 months. But many also pointed out that the central bank had a lot more work to do in getting the economy to a soft landing instead of a recession.
"Today's pivot turned what was supposed to be a green month for oil into a red one," said John Kilduff, founding partner at energy hedge fund Again Capital. "I see WTI making a low of USD74 next week despite next week's OPEC+ meeting and the optimism bubbling over Chinese oil demand."
OPEC+ is to meet on Feb. 1 to decide its monthly production targets. After announcing an unexpected production cut of 2 m bpd that did not prevent a price collapse in Dec, the alliance is expected to roll over production targets for Feb.
The EU is considering setting a USD100 a barrel price cap on Russian diesel to limit the potential fallout on global supply after the EU ban on Russian refined products comes into effect on Feb 5, EU officials have told Reuters.
The EU will ban seaborne imports of Russian refined oil products, and around 1 m bpd of Russian diesel, naphtha, and other fuels need to find a home elsewhere if Moscow wants to continue getting money for those products.
An EU proposal calls for capping the price of Russian diesel sold to third countries at USD100 per barrel. Similarly to the price cap on Russian crude, buyers outside the EU will continue to have access to Western insurance and financing for cargoes if they comply with the price cap. The proposal also includes setting a price cap of USD45 per barrel for discounted products such as fuel oil.
The EU is buying more diesel from the U.S. and Saudi Arabia in preparation for the EU ban, yet Europe still remains the biggest buyer of Russian diesel.
In Dec, for example, Russia's diesel exports surged to a multi-year high of 1.2 m bpd, of which 720,000 bpd was destined for the EU, according to estimates by the IEA.
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