Weekly Oil Price Drop of 10%

Oil prices were stable on Friday, even though both benchmarks were on track to lose money for the week due to worries about how the weak economic outlook in China, Europe, and the U.S. would affect demand for the commodity.

Brent crude oil futures were trading at $76.20 per barrel, up $5. This week, Brent reached a 2022 low.

West Texas Intermediate crude oil price increased 42 cents to $71.88 per barrel in the U.S.

The contracts should lose around 10% per week, their worst weekly percentage drops since August and April, respectively.

Russia’s ESPO grade, or Far East crude, is selling in Asia for more than $60 per barrel, indicating that Russia is currently handling the short Russian Far East-China route with Russian tankers and insurance.

Some independent Chinese refiners, known as teapots, have already placed orders for ESPO crude for January delivery, with Argus Media estimating the price at $67.11 per barrel on Thursday.

The E.U., G7, and Australia imposed a price cap on Russian crude on Monday, but China has not joined the so-called Price Cap Coalition.

Russia has used its tankers to transport the ESPO crude and frequently provides its insurance.

It appears that Chinese refiners continue to buy Russian crude oil while ignoring the price cap imposed by Western countries. However, due to sluggish demand, China’s independent refiners are receiving the steepest discounts in months for Russia’s ESPO crude.

Last week, at least one cargo of ESPO, which China’s independent refiners prefer, traded at a $6 per barrel discount to the February ICE. The current Brent Crude oil price means the ESPO cargo traded for around $68 per barrel.

E.U. Gas Price Cap Risks

An EU-wide cap on natural gas prices could pose risks to the financial markets, which worries the European Central Bank.

For several weeks, the bloc has debated how to set a ceiling on gas prices. The measure, intended to keep consumer costs low, is proving divisive in Europe, which is experiencing an acute energy crisis due to Russia’s invasion of Ukraine.

The executive branch of the E.U., the European Commission, suggested a cap of 275 euros ($290.33) per megawatt-hour in November. Several member states countered that this was insufficient and would not be activated.

Some hope that a decision on the price cap will be final at the E.U. energy ministers meeting in Brussels, Belgium. Many countries, including Poland, Greece, Spain, and Portugal, are eager to implement the price cap.

The current proposal under consideration is a cap of 220 euros per megawatt hour. This could change again before the ministerial meeting on Tuesday.

The same proposal states that the price cap would only be activated if European gas prices exceeded the price cap for two weeks and were 58 euros higher than the LNG reference price for ten consecutive trading days.

Despite Kazakhstan and Uzbekistan’s chilly responses to the idea, Russia appears determined to press its proposal for creating a so-called natural gas union with those nations struggling with worsening shortages. The Kremlin’s proposal for a gas union should have been the answer to everyone’s problems. However, it has also sparked speculation that Russia may use the agreement to give itself some political clout over Kazakhstan and Uzbekistan, both of which have watched Moscow’s bellicose actions and rhetoric in recent months with palpable unease.