Oil futures: Brent retreats 3% amid Russian supply uncertainty, China slowdown fears
Quantum Commodity Intelligence – Brent futures Tuesday were trading sharply lower, relinquishing the solid early-week gains on renewed demand fears as China rolls out mobility restrictions, while further interest rates hikes on the horizon also spooked oil markets.
Front-month November ICE Brent futures were trading at $92.80/barrel (1915 GMT), compared to the day's high of $95.94/b and Monday's settle of $95.74/b.
At the same time October NYMEX WTI was trading $86.85/b, versus the previous settle of $86.87/b, with different US holiday closing times Monday behind the WTI and Brent price-change discrepancy.
The loss of gas via Nord Stream and threat to Russian oil supplies as a result of the proposed price cap had bolstered prices since Friday, amid growing fears of further energy shortages heading into winter.
Goldman Sachs said the decision by G7 countries to introduce the price cap on Russian oil exports next year is likely to increase, not decrease prices, with major upside risk based on possible Russian retaliation.
"The key risk to this policy... is the potential for Russian retaliation, which would turn this into an additional bullish shock for the oil market," Goldman Sachs said in its latest investor note.
Both China and India have pushed back on the proposals, leaving the G7 likely facing enforcement issues.
Meanwhile, Dutch TTF futures for Oct22 were down around 2.5% in European afternoon trade at around €240/MWh, as prices steadied after retreating from the early-Monday high of €290/MWh.
China
Markets remain cautious, after varying degrees of restrictions to tackle Covid outbreaks were imposed in over 30 Chinese cities, including major urban centres of Shenzhen and Chengdu, sparking demand slowdown fears.
China's rigid Covid control measures again have snarled supply chains and disrupted productions in some of the country's most important production hubs.
Traders were also looking Thursday's ECB rate decision, while the US Federal Reserve meeting will take place 21 Sept.
Monday's decision by OPEC+ to trim output was seen by analysts as pragmatic in the face of growing uncertainties, but has done little to shore up prices.
"Crude oil has given up yesterday's gain, and if the token 100k bpd non-cut from OPEC+ was meant to send a signal of price support, the market has instead interpreted the move as a sign the group is worried about recession and lower demand," said Ole S Hansen, Head of Commodity Strategy at Saxo Group.
Matthew Holland of Energy Aspects commented: "OPEC+ is wary of protracted price volatility generated by weak macro sentiment, thin liquidity and renewed China lockdowns, as well as uncertainty over a potential US–Iran deal and efforts to create a Russian oil price cap."
On Monday, the EU's lead negotiator in the JCPOA talks, Josep Borrell, conceded the process was "in danger" due to the divergence in positions held by Washington and Tehran.
"We were converging to a closer position. But then the last interaction is not converging, [it] is diverging… If the process doesn't converge, the whole process is in danger," said Borrell.
The comments were seen as another nail in the coffin for hopes of a resolution this month, after 18 months of protracted talks.
Meanwhile, Baker Hughes' latest weekly survey showed active drilling rigs in the US dropped by five units to 760, while drilling rigs specifically for crude oil fell by nine to 596.
