Oil prices fell 12% for the week amid falling demand and rising inventories

Analysts had expected the EU and G7 to cap Russian oil at $60/barrel to support oil prices, especially given OPEC's refusal to increase production quotas, but the market responded with an 11% drop and an overall decline of week by 12-13%.

February Brent oil futures on the London ICE exchange fell 10.9% to $77.2/barrel from Monday, 12.7% for the week, and 21.7% for the month. January WTI oil futures fell 11% to $72/barrel from Monday, 11.8% for the week, and 22.2% for the month, hitting a yearly low.

The reason for the drop in prices is disappointing news about China's economy, where, according to customs, exports of goods in November fell by 8.7% (in annual terms) to a 3-year low, against analysts' expectations of 3.9%, and imports - by 10 .6% to a 2.5-year low against expectations of 7.1%.

At the same time, China increased crude oil imports by 12% compared to November 2021 to a 10-month high, trying to replenish stocks with cheap oil and buying large volumes of Russian oil, which will become even more after December 5.

In the near future, oil prices will be supported by the expected increase in demand from China, where the anti-virus policy is radically changing. After the protests in China's major cities, the requirement of covid testing to enter most public places, with the exception of restaurants, bars and homes for the elderly, was abolished. 27,164 new Covid cases were recorded on Monday, the lowest in 2 weeks.

The oil market is being pressured by the decision of the state-owned company of Saudi Arabia, Saudi Aramco, to lower the prices of Arab Light oil for January delivery by $2.2-3.25/barrel for buyers from Asia against the backdrop of a drop in demand due to the arrival of cheap Russian oil, which after restrictions for delivery to the EU is offered with a discount.

U.S. gasoline inventories rose by 5.32 million barrels and distillate supplies by 6.16 million barrels to a 10-month high, according to the EIA's weekly report, although analysts had expected an increase of only 2.47 million barrels and 2 .35 million barrels, respectively. Crude oil output for the week of Nov. 27-Dec. 2 rose 0.8% to a 2.5-year high of 12.2 million bpd, but inventories fell by 5.19 million bpd for the week, a low of 7.5 months and significantly exceeds expectations.

On Friday, Baker Hughes reported that the number of active US oil rigs remained at 627 rigs between November 27 and December 2, compared to just 172 rigs in August 2020, a 17-year low.

A sharp drop in oil prices will continue to put pressure on the prices of agricultural crops, especially those used in the production of biofuels - corn, rapeseed, palm and soybean oil. If oil prices remain in the range of $75-80/t, then we should expect a new wave of falling prices for these crops.