Oil prices fell by 7.7% this week and may fall further due to restrictions on Russian oil prices

World oil prices remain highly volatile as they are affected by multiple factors. Therefore, jumps of 5-10% no longer bother the market. But after a 7.7% drop in prices this week amid new pressures emerging, quotes could drop to $90/barrel and below.

Since Monday, November Brent crude oil futures have fallen by 7.7% to $95.6/barrel, and WTI crude oil has fallen by 7.9% to $89/barrel, which is 2.5% lower than last month.

The reason for the fall was the news that on Friday G7 finance ministers will discuss a plan to set a ceiling price for Russian oil and promise to complete its implementation by December. In particular, the USA proposes to limit the price of selling Russian oil to Europe at $40-60/barrel.

After the introduction of sanctions against the Russian Federation for the war in Ukraine, Russian oil is traded at a discount of $30-35/barrel relative to the price of Brent oil, and the introduction of a ceiling price will further increase the discount.

The oil market is also weighing on data that the US economy is slowing, which will dampen demand for energy, so prices are falling despite a larger-than-expected draw in weekly US oil and gasoline inventories.

U.S. crude oil inventories fell by 3.33 million barrels and gasoline inventories by 1.17 million barrels to a 9-month low, according to the EIA, while analysts expected a decline of 950,000 barrels and 1 million barrels, respectively.

Amid Covid and a slowing economy in China, demand for oil is falling, and in July refineries processed the least amount of oil since March 2020. Compared to last year, in July the demand for oil in the country fell by 9.7% to 12.16 million barrels/day, and for the January-July period – by 4.6% to 12.74 million barrels/day.

The market is still waiting for the results of the negotiations between the US and Iran on the renewal of the nuclear deal, which could lift sanctions against Iran and restore supplies of Iranian oil to the world market.

According to Vortexa, the amount of oil stored on tankers stationary for at least a week fell 7.8% to 100.7 million barrels in the week, still up 17% from two weeks ago.

According to IEA estimates, OPEC+ produced 29.05 million barrels of oil daily in July, which is still 2 million barrels/day less than the issued quota, as there are supply problems and capacity shortages in Nigeria and Libya.

Due to unrest in the capital of Libya, oil exports from the country are limited to 600,000 barrels/day, but the oil ministry says that crude oil production will increase to 1.2 million barrels/day as the operation of oil facilities resumes.

A further drop in oil prices could add pressure to soybean and corn prices, which have fallen from highs in the first half of the year and are holding on only for now on forecasts of a reduced US harvest.