EUROPEAN COMMODITIES UPDATE: Crude capped by oil cap reports ahead of a potential EU Ambassadors discussion

Analysis details (10:55)

• Crude consolidated and was firmer by around USD 0.50/bbl, in fitting with the general tentative risk tone with conditions thin on the last full session of the week pre-Thanksgiving. However, in a delayed reaction, the benchmarks have experienced marked pressure from Bloomberg citing sources that the EU is considering a price cap on Russian oil of USD 65-70bbl, alongside this several EU diplomats reportedly said the proposed level was too high. As a reminder, in recent months speculation based on US guidance has been that the level would be around the USD 60/bbl mark, in order to account for fair market value minus any Ukraine-associated risk-premia, a level which would be above Russia’s marginal production cost which Russia has previously intimated is around USD 44/bbl. On this, WSJ’s Norman’s understanding earlier in the session was the EU Ambassadors would return to the issue this afternoon and attempt to agree on relevant legislation today. As this report got wider coverage, and Reuters cited a European official with similar language, WTI and Brent Jan’23 futures fell to session lows USD 79.51/bbl and USD 86.55/bbl vs circa. USD 81.30/bbl and USD 88.80/bbl respectively prior to the reference source report. Note, while today’s trough is now below Tuesday’s equivalent, given the magnitude of Monday’s price action around the OPEC+ production reports/denials, the WTD low of, for instance, USD 75.08/bbl in WTI remains some way off.


• Price caps aside, newsflow explicitly for the complex has been limited for much of the morning, with known factors including BP’s Rotterdam outage and the COVID situation drawing focus; on the latter, the latest reports via Bloomberg indicate that Beijing is set to maintain COVID curbs until a turning point appears. Reminder, the city updated yesterday that measures would be tightened from November 24th onwards given the recent jump in case, today’s local case report was 913 infections vs yesterday’s 634.


• For metals, spot gold and silver are diverging modestly but remain in close proximity to the unchanged mark as sentiment struggles for clear direction alongside a gradual pick-up in the USD, though upside has struggled to make significant inroads above 107.00 in DXY terms. Elsewhere, base metals are under modest pressure with LME Copper flirting with 8k to the downside given the ongoing China COVID crackdown, though the magnitude of this downside is limited at present and near the prior closing price.

23 Nov 2022 - 10:55- Research Sheet- Source: Newsquawk