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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Prices On Course For A 10% Loss This Week

  • Oil prices are set to book a significant loss this week, with WTI and Brent on track to post a 10% loss if Friday’s trade is in line with the rest of the week.
  • Demand concerns continue to trump bullish news in the oil market, with fears of a global recession being amplified by monetary policy tightening.
  • The price cap on Russian oil has so far had a limited effect on oil markets, leading traders to sell their positions.

Crude oil prices are about to book a week of sizeable losses, during which market movements erased all gains Brent and West Texas Intermediate had made since the start of the year.

According to Bloomberg, the cumulative weekly loss for the benchmarks could reach 10 percent if today’s trade is in line with what we’ve seen so far this week, as demand concerns trumped the news of China reopening after massive Covid restrictions.

At the same time, even though the price cap on Russian oil that G7 put into effect on December 5 was theoretically bullish for oil, traders figured out it was unlikely to have any immediate effect on physical oil supply and instead of buying began selling their positions.

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This could yet change once the dust from the cap’s implementation settles and the potential for supply disruption unfolds.

For now, there have only been hints: Turkey’s new proof-of-insurance rules are one such hint, which has got some 20 million barrels of Kazakh crude stuck in the Turkish straits. At the same time, traders are sounding the alarm over confusion in the physical oil market where cargos have never been traded at fixed, unchangeable prices.

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Meanwhile, however, fears of a looming global recession fuel a bearish mood among traders, and this is getting reflected in prices.

“Oil has been dragged lower by broader recession fears that accompany global monetary policy tightening,” Vishnu Varathan, the head of Asia economics and strategy at Mizuho Bank, told Bloomberg. “And given the lags in monetary policy, a ‘wall of tightening’ may hit the global economy yet.”

The bearish factors are s strong right now that even the news of the Keystone pipeline spill and consequent shutdown did not have any substantial effect on oil prices.

"I would tend to think that, any minute here, you're going to see a headline hit the tape that's going to say that Keystone is going to be back sooner rather than later," Bob Yawger, director of energy futures at Mizuho, told Reuters.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on December 09 2022 said:
    Oil prices are volatile by nature and are able to reverse course and surprise the market. Moreover an oil price cap can never work in a tight market.

    The recent decline in Brent crude has nothing to do with the Western price cap and everything to do in confusion and uncertainties in the market and concerns about impending recession. However, all this could change suddenly and prices could recoup all their losses. This happened before and will happen again since the strong fundamentals of the market haven’t changed.

    The only thing the cap has created in the market is confusion and eventual supply disruptions. But this will clear soon when the market realizes that the cap isn’t working.

    Authors contributing to the oilprice.com shouldn’t rush to count their chicken before they are hatched. Actions by Russia and OPEC+ as well as more easing of the lockdown in China could transform the market in no time.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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