The benchmark Brent crude price reached $86.06 per barrel on Monday morning as OPEC+ held their output targets with the European Union ban and a price cap on the Russian oil comes in effect today.
Another factor boosting the oil price is more Chinese cities eased Covid-19 curbs over the weekend, though the partial easing in policies sowed confusion across the country on Monday.
While prices rose as much as 2 per cent earlier in the day, both the Brent and US West Texas Intermediate (WTI) contracts have since pared some gains. Brent crude futures were last up 49 cents, or 0.6 percent, to $86.06 a barrel at 0700 GMT, while WTI crude futures gained 51 cents, or 0.6 percent, to $80.49 a barrel.
On Sunday, the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russia, together called OPEC+, agreed to stick to their October plan to cut output by 2 million barrels per day from November through 2023.
The OPEC+ decision shows that the major producers wait to see the impact of the EU import ban and Group of Seven (G7) $60-a-barrel price cap on seaborne Russian oil, with Russia threatening to cut supply to any country adhering to the cap.
However, Leon Li, a Shanghai-based analyst at CMC Markets, says the OPEC+ decision along with weak economic data out of China could reverse oil’s price gains.
“The current economic data of China is still weak, with a sharp decline in imports and exports, which reflects the sluggish domestic demand and the declining trend of the overseas economy. It is challenging to drive the demand for crude oil,” said Li.
Business and manufacturing activity in China, the world’s second largest economy and top crude oil importer, have been hit this year amid strict zero-tolerance measures to curb the spread of the coronavirus.
Prices of oil and gas have soared on concerns that Russia’s invasion of Ukraine could hit supply. Russia is the world’s second top producer of crude oil after Saudi Arabia, and supplies around a third of Europe’s needs.
US Treasury Secretary Janet Yellen said the price cap would further constrain Russian President Vladimir Putin’s finances and “limit the revenues he’s using to fund his brutal invasion” while avoiding disrupting global supplies.
However, Ukraine President Volodymyr Zelenskyy called the cap “a weak position” that was not “serious” enough to damage to the Russian economy.
Although the measures will most certainly be felt by Russia, the blow will be partially softened by its move to sell its oil to other markets such as India and China, who are currently the largest single buyers of Russian crude oil