Oil prices edged down on Monday in a volatile session as investors stood on guard for any moves against Russian oil and gas exports that might come out of a meeting of leaders of the Group of Seven (G7) nations in Germany.
The prospect of more supply tightness loomed over the market as western governments sought ways to cut Russia’s ability to fund its war in Ukraine, even though G7 leaders were also expected to discuss a revival of the Iran nuclear deal, which might lead to more Iranian oil exports.
Members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies including Russia, known as OPEC+, will likely stick to a plan for accelerated oil output increases in August when they meet on Thursday, sources said.
But, for now, the pressing supply worries outweighed growing concerns over the potential for a global recession following a string of downbeat economic data from the US, the world’s biggest oil consumer.
Brent crude futures edged down 8 cents to $113.04 a barrel by 0632 GMT after rebounding 2.8 per cent on Friday. US West Texas Intermediate crude was at $107.38 a barrel, down 24 cents, or 0.2 per cent, following a 3.2 per cent gain in the previous session.
Both contracts fell last week for the second week in a row as interest rate hikes in key economies strengthened the dollar and fanned recession fears.
However, oil prices are well supported above $100 a barrel while the backwardation in prompt monthly spreads remained wide. Backwardation is the market structure when prompt futures prices are higher than prices for delivery in later months, indicating limited supplies.
“There seems to be a macro vs fundamentals battle going on at the moment,” Warren Patterson, ING’s head of commodity research said. “As we have seen prices come under pressure, timespreads have strengthened, suggesting the market is still tight.”
G7 leaders, who began their meeting on Sunday, are expected to discuss options for tackling rising energy prices and replacing Russian oil and gas imports, as well as further sanctions that do not exacerbate inflation.
These measures include a possible price cap on Russian oil exports to reduce Moscow’s revenues while limiting the damage to other economies.
“It’s unclear whether a price cap will achieve this outcome,” Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
“There’s still nothing stopping Russia from banning oil and refined product exports to G7 economies in response to a price cap, exacerbating shortage conditions in global oil and refined product markets.”
The G7 will also discuss the prospect of reviving the Iran nuclear talks after the European Union’s foreign policy chief met senior officials in Tehran to try to unblock the stalled negotiations, a French presidency official said on Sunday.
In addition, some of the G7 leaders are pushing for an acknowledgement of the need for new financing for fossil energies investment, two sources told Reuters on Sunday, as European states scramble to diversify supplies.