Oil is down more than 3% on price cap talks in Russia and an increase in gasoline in the US

  • US gasoline inventory data from the Energy Information Administration (EIA) shows a higher-than-expected build
  • The G7 price ceiling on Russian oil could be higher than the current trading level
  • Chinese demand concerns weigh on increasing COVID-19 cases
  • The majority of Fed officials see a slowdown in rate hikes soon

HOUSTON (Reuters) – Oil prices fell more than 3% on Wednesday, continuing a series of trade volatility, as the Group of Seven (G7) countries considered a ceiling on Russian oil prices above the current market level and gasoline inventories. In the US it built more than analysts expected.

Brent crude futures for January delivery fell $2.95, or 3.3 percent, to settle at $85.41 a barrel. US crude fell $3.01, or 3.7%, to $77.94 a barrel. In early trading, both contracts rose by more than $1 a barrel.

US gasoline inventories rose by 3.1 million barrels, according to the Energy Information Administration, far exceeding the 383,000 barrels that analysts had expected.

“The build-up in gasoline is kind of a shock,” said Phil Flynn, an analyst at Price Futures Group. “The increase in gasoline supplies suggests that we may be seeing weak demand or that gasoline is running on the shelf before the holidays.”

The Energy Information Administration data also showed a decline in crude stocks by 3.7 million barrels, compared to analysts’ expectations in a Reuters poll, down 1.1 million barrels.

Prices were further affected by reports that the Russian oil price ceiling for the G7 could be higher than the level it is trading at.

The G7 countries are looking to cap Russian seaborne oil prices in the range of $65-70 per barrel, according to a European official on Wednesday.

Meanwhile, Urals crude delivered to northwest Europe is trading at around $62 and $63 per barrel, although it is higher in the Mediterranean at around $67 to $68 per barrel, according to Refinitiv data.

Since production costs are estimated at around $20 per barrel, the cap would make it profitable for Russia to sell its oil and in this way prevent a shortage in the global market.

A senior US Treasury official said on Tuesday that the rate ceiling is likely to be adjusted several times a year.

The news added to worries about demand from China, the largest importer of crude oil, which is grappling with a surge in coronavirus cases, with Shanghai tightening rules late Tuesday.

Further pressure came from the Organization for Economic Co-operation and Development’s economic outlook, which forecasts a slowdown in global economic expansion next year.

“On the bright side, the OECD does not envision a global recession and this may have helped further boost oil and stock prices,” said Tamas Varga, analyst at PVM Oil Associates.

The price found some support after minutes of the Fed’s meeting in November showed most policymakers agreed it would soon be appropriate to slow rate hikes.

(This story has been reworked to fix garbled text in the first paragraph)

Additional reporting by Rowena Edwards in London, Sonali Paul in Melbourne, and Isabelle Qua in Singapore. Editing by Louise Heavens, Kirsten Donovan, David Gregorio, and Barbara Lewis

Our Standards: The Thomson Reuters Trust Principles.

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