Crude oil prices fell significantly on Tuesday despite strong US economic data, as well as better employment numbers and a positive Purchasing Managers’ Index (PMI).
According to Oilprice.com, Brent crude fell around 3.5% to trade at $79.76 a barrel, while US WTI fell 3.30% to trade at $74.39 a barrel, as there is concern that the Federal Reserve may continue with its aggressive tightening policy.
The oil market is not impressed by the oil price cap
Oil prices have been in free fall this week as markets are unimpressed by the G7 oil price cap which has not triggered any anticipated supply shortages.
The European Union (EU) and the United States have agreed to a 45-day transition period in which the parties can still legally purchase crude, as long as it is delivered to the final destination by January 19, 2023.
In addition, physical traders who often wait weeks for the final price have expressed their dissatisfaction, saying the price cap forces them to take unnecessary risks without having any impact on Brent or WTI quotes.
Most oil shipments around the globe are priced forward and floating, meaning that if G7 buyers wanted to ensure they met the price ceiling, they would have to buy at a fixed price, a rarity in the markets. .
Surprise drop in oil prices despite improving US economic and jobs data.
US service industry activity unexpectedly picked up in November, with employment picking up, providing further evidence of the underlying momentum in the economy as it braces for an anticipated recession next year.
News of economic prowess rarely triggers a massive drop in oil prices; however, strong US economic data this week, with employment numbers and industry PMIs well above expectations, helped to achieve the opposite.
In addition to the Russian oil price cap, Chinese demand and others, the prospect of the US keeping interest rates higher for longer is slowly becoming mainstream as inflationary pressures weigh on sentiment the market in the medium and long term.
The oil price cap becomes a reality.
After the Group of Seven agreed to a price cap of $60 a barrel last Friday, the new measure took effect this week amid repeated promises by Russia not to sell oil to countries participating in the price cap. .
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