EU tweaks sanctions to remove obstacles to Russia's oil deals with third countries
U.S. crude oil prices fell below $95 a barrel for the first time since April in volatile trade on Friday after the European Union said it would allow Russian state companies to ship oil to third countries under sanctions agreed by member states this week.
West Texas Intermediate crude (WTI) fell $1.65, or 1.7%, to $94.70 a barrel, while Brent crude futures fell 66 cents, or 0.6%, to $103.20 a barrel.
WTI closed lower for the third straight week, pummelled over the past two sessions after data showed that U.S. gasoline demand had dropped nearly 8% from a year earlier in the midst of the peak summer driving season, hit by record prices at the pump.
In contrast, strong demand signs in Asia supported the Brent benchmark, which rose for the first time in six weeks.
Oil futures have been volatile in recent weeks, with the possibility of further rate hikes that could dampen demand in response to a supply shortage from the loss of Russian products.
Russian state companies Rosneft and Gazprom will be able to ship oil to third countries in order to limit risks to global energy security. The tweaked sanctions against Russia, which came into effect on Friday, will not prohibit payments by EU companies related to the purchase of crude oil transported by sea from Russia.
The EU announcement came after the Governor of the Russian Central Bank, Elvira Nabiullina, said it would not supply crude oil to countries that have decided to impose a price cap on their oil, and would instead direct it to countries ready for cooperation with Russia.
Perceptions are increasing that the US and EU will impose a ceiling price on Russian oil by the end of the year. Russia won't supply oil to countries that impose price cap. History shows that government-induced price caps on commodities are often short-lived and can lead to exaggerated prices in a short while.
Prices are under pressure as interest rate rise concerns and Libya's resumption of some crude oil production. Libya's oil ministry said Libya's oil production is more than 800,000 barrels per day (bpd) and will reach 1.2 million barrels by next month.
A manager of Iraqi Basra Oil Co said Iraq has the capacity to increase oil production by 200,000 barrels per day this year if requested.
U.S. oil rigs have held steady at 599 this week, according to data from Baker Hughes, an early indicator of future production.
According to data on Friday, it is seen that the probability of a serious slowdown in the global economy is increasing.
Recent moves in crude oil and interest rate futures predict a downturn in the business cycle that will cause oil consumption to decline before the end of the year and in the first three months of 2023.
Investors are also watching the US Federal Reserve's decision on interest rates next week. Fed officials said at its July 26-27 meeting that the central bank will likely raise interest rates by 75 basis points.
Demand in India remains strong and the refinery production remains above pre-pandemic levels. China is poised to make major efforts to consolidate its economic recovery, particularly in the third quarter, state media reported.
The U.S. Commodity Futures Trading Commission (CFTC) and Intercontinental Exchange showed money managers increased their net long U.S. crude and Brent futures and options positions through July 19.
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