By Peter Nurse
Investing.com -- Oil prices fell Tuesday to their lowest levels in a week, as the risk appetite associated with the relaxing of China’s COVID restriction ran its course amid uncertainty over Russia’s supply given the start of the European Union ban and an associated G7 price cap.
By 09:00 ET (14:00 GMT), U.S. crude futures traded 1.7% lower at $75.62 a barrel, while the Brent contract fell 1.7% to $81.31.
Crude futures slumped over 3% on Monday after U.S. services industry data indicated a resilient U.S. economy, potentially allowing the Federal Reserve to maintain its aggressive interest rate rises for a longer period.
This weakness continued Tuesday even though Beijing, China’s capital, relaxed more regulations on quarantining and testing, following a pattern set by other major cities such as Shanghai and Shenzhen and comes as official case numbers retreat from their peak in late November.
Also weighing was the uncertainty in the market following the introduction of a price cap of $60 a barrel on Russian crude imposed by the Group of Seven major industrialized nations as well as the European Union’s embargo on imports of Russian crude by sea.
“The level of the cap suggests that we are unlikely to see Russia reducing output as a result,” said analysts at ING, in a note.
A line of Russian oil tankers has been seen at the Bosporus Strait, unable to provide the marine insurance certification required for passing through the busy passage to world markets as Turkish authorities enforce the G7 price cap. That said, there has yet to be widespread disturbance as a result.
Under the mechanism, EU companies are banned from insuring any Russian oil cargo bought for more than $60 a barrel.
This could boost prices if the bottleneck lasts for any length of time, but it could also lead to the diversion of more Russian oil to export points in Asia where it has to be priced more cheaply in order to attract buyers.
The American Petroleum Institute reports its weekly U.S. inventory data later in the session. It is expected to show another hefty draw in crude stocks, although perhaps not as large as last week’s fall of almost 8 million barrels.
The Energy Information Administration also publishes its short-term energy outlook.