Oil Has Dropped Below $2 per Barrel

Oil futures fell more than $2 a barrel on Monday. WTI hit an 11-month low as demand picked up as protests against tough COVID-19 regulations hit top importer China.

Brent crude fell $2.16, or 2.6%, to $81.47 per barrel at 0230 GMT after falling to $81.161 earlier in the session.

WTI crude in the United States fell $2.08, or 2.7%, to $74.20 per barrel. It had dropped as low as $73.82 earlier in the day, the lowest since December 27, 2021.

Both benchmarks have dropped three weeks after reaching 10-month lows last week. Brent was down 4.6% last week, while WTI was down 4.7%.

Protests against China’s strict Covid restrictions broke out for three days and spread to several cities, sparking clashes between hundreds of protesters and police officers in Shanghai on Sunday night.

Diplomats from the Group of Seven and the European Union have discussed a price cap on Russian oil between $65 and $70 per barrel to limit revenue for Moscow’s military offensive in Ukraine without causing disruptions in the world oil markets.

According to EU diplomats, a meeting of government representatives from the European Union scheduled for the evening of November 25 to discuss the matter has been postponed. On the question of whether Russian oil prices should have a cap, EU governments disagreed on Thursday.

The price cap should go into effect on December 5, when the EU ban on Russian crude goes into effect.

Hungary’s Fuel Price Cap

The government announced on Monday that Hungary could only maintain a fuel price cap after January 1 if oil shipments from Russia continue to flow and the refinery in Szazhalombatta runs continuously.

Prime Minister Viktor Orban’s administration instituted the fuel price cap in November 2021 to protect Hungarian consumers from rising inflation. However, due to supply issues, it scaled back in July.

This month, a section of the Druzhba pipeline that supplies electricity to a pump station near the Belarusian border was struck by a Russian rocket, which temporarily stopped oil flow to parts of Central and Eastern Europe.

Russia Backtracks on Threat to Cut Gas Supply

The state-owned gas producer of Russia, Gazprom, withdrew a threat to cut off gas shipments to Moldova starting Monday.

Gazprom claimed last week that Ukraine was withholding gas supplies bound for Moldova, a claim that Kyiv denied, and declared that it would start cutting those flows on Monday.

In a recent statement, Gazprom said that Moldovan gas firm Moldovagaz had paid for gas deliveries made in November and for gas intended for Moldovan customers but remained in Ukraine.

Gazprom, however, asserted that Moldova “regularly violated” its payment obligations and stated that it reserves the right to reduce or stop all supply in the event of a payment violation. Meanwhile, Gazprom said it would send 42.2 mcm of gas to Europe via Ukraine on Monday. Both figures include flows to Moldova.

As 2022 comes to a close, Russia and Iran, both find themselves embroiled in a conflict with the West and under increasing pressure from Western sanctions. Therefore, it is not surprising that Tehran and Moscow are actively trying to mend fences, both on and off the battlefield and in the energy industry. An agreement between the two countries has entered into force by which Russia must invest 40 billion dollars in Iranian gas projects.

Russia and Iran may have been rivals rather than allies just a few months ago. After Russia’s invasion of Ukraine hit Russian gas exports to Europe, Iranian authorities announced they may step in to offset shortfalls in the European market.