Crude oil meanwhile popped higher after Putin said a price cap on Russian oil and gas would lead to a complete halt of supplies to those involved. "We will not supply gas, oil, coal, heating oil - we will not supply anything," Putin said. His comment helped arrest a slide that earlier had taken Brent and WTI to their lowest levels since January. Driven by continued demand worries related to the risk of growth-killing rate hikes from central banks battling runaway inflation and China’s continued economic struggle caused by its Covid-zero policy.
Some 46 cities in China have by now implemented various degrees of lockdowns or restrictions on mobility, affecting nearly 300 million people and close to 25% of the country’s GDP. In addition, a surging dollar and weaker equity markets continue to negatively impact the general level of risk appetite. Instead of supporting prices, the token 100k b/d OPEC+ production cut announced on Monday has had the opposite effect with the market concluding the group worries about demand going forward.
A price cap would undoubtedly lead to more upheavals of the global energy market, not least considering Russia, despite sanctions, has managed to maintain its position as the world’s second biggest supplier after Saudi Arabia. Again the focus will be squarely on Europe which prior to the Ukraine war bought around 40% of its gas and 30% of its oil and fuel products from Russia.
In the short-term, Russia’s threat to G7 and Europe in particular is unlikely to halt the current negative oil market sentiment. However, having unsuccessfully tried to support prices by their token production cut, the market is wary about renewed verbal intervention from key OPEC producers, who can meet at short notice if required by the prevailing market conditions.
In Brent, the market is focusing on support around $90 per barrel, as a break may signal further weakness towards $86.70 followed by $77.60.