Energy - price cap decisions
Sentiment in the oil market remains negative, and developments over the weekend in China will certainly not help. China continues to see record daily cases of Covid, which has resulted in some cities tightening mobility restrictions. Reports of Covid protests in China will also likely prove harmful for sentiment.
Unsurprisingly, investor appetite has taken a hit in recent weeks - one only needs to look at the price action to see this. Positioning data adds confirmation to this thesis. The latest exchange data shows that speculators reduced their net longs in ICE Brent by 70,502 lots over the last reporting week, leaving them with a net long of 138,048 lots as of last Tuesday. This is the smallest position held since August. The market appears not to be concerned about the ongoing uncertainty over Russian supply. Instead, attention seems fully focused on the demand story.
Over the weekend the US government relaxed oil sanctions against Venezuela by allowing Chevron to restart oil production at some of its joint ventures in the country. The easing in sanctions will have a limited impact on the market, given that volumes will be relatively small. The easing also appears to allow the export of this crude to the US. This will be helpful for US refiners on the hunt for heavier grades of feedstock.
As for the week ahead, we should start to get some preliminary production numbers for OPEC members for November. This will obviously give a good insight into which members have reduced their output in accordance with the latest OPEC+ supply cuts. OPEC+ agreed back in October to reduce their production targets by 2MMbbls/d from November.
However, the market will likely be closely watching price cap developments this week. EU members failed last week to agree on a level for the price cap for Russian oil. The EU and G-7 will want to come to an agreement this week, before the EU ban on Russian seaborne crude oil kicks in on 5 December. EU members will also have to agree on the proposed price cap on TTF gas futures with the Commission last week suggesting setting the cap at EUR275/MWh, which some members believe is too high.
