WTI crude oil futures plunged almost 5% in the previous week, to below $77 per bbl, the lowest levels since January 2022, as demand concerns rose, while prospects of supply disruptions faded. China’s covid cases almost doubled the previous week, rising to 38,808 cases on Sunday, testing authorities’ nerves. Concerns of other lockdowns and ongoing mass restrictions weighed down on oil prices.

The price cap uncertainty was what was providing a floor on oil prices, which failed to enthuse bulls, as the EU proposed a higher price cap. EU initially proposed a range of $65 – $70 per bbl, which was in line with the Urals export price, dampening hopes of any supply disruptions or retaliation from Russia. Later, EU diplomats suspended talks on capping Russian oil prices, as Poland and the Baltic states objected to a proposal they consider too generous to Moscow.

Outlook for the week – China, OPEC+ in focus

Crude oil extended the previous week’s losses, as anxiety over further lockdowns amid the ongoing zero covid policy and surging cases erupted into protests. Beijing’s economy has been roiled by Covid Zero, with increasingly strict controls curbing people’s mobility and disrupting business activity. Political uncertainty and record-high cases might prompt further weakness in oil prices.

EU talks on price cap ahead of the sanctions on 5th December have been postponed to Monday, amid a lack of consensus between members. Poland is demanding additional sanctions, a review mechanism, and a price below the market level while shipping nations like Greece favor a higher level that will help keep trade flowing. Nations are forced to choose between two options: to choke off revenue to Russia and avoid potential price spikes in the event of Russian retaliation by curbing output, restraining the EU to take aggressive measures.

Meanwhile, Kremlin is drafting a presidential decree that will prohibit Russian companies and any traders buying the nation’s oil from selling it to anyone that participates in a price cap.

Unless OPEC+ curbs output or price cap fails or the US starts refilling reserves, we might see a further slide in oil prices. MCX Crude oil November futures might trade in the range of Rs.5,600 – 6,600 per bbl for the week.