HOUSTON, Nov 23 (Reuters) – Oil prices fell more than 3% on Wednesday, continuing a streak of volatile trading, as Group of Seven (G7) countries considered a price cap on Russian oil above the current market level and as gasoline inventories in the United States have accumulated more than analysts expected.
Brent crude futures for January delivery fell $2.95, or 3.3%, to settle at $85.41 a barrel. U.S. crude fell $3.01, or 3.7%, to $77.94 a barrel. At the start of trading, both contracts had risen more than $1 a barrel.
U.S. gasoline inventories rose 3.1 million barrels, according to the Energy Information Administration, far exceeding the 383,000 barrels that analysts had forecast.
“The rise in gasoline is kind of a shock,” said Phil Flynn, an analyst at Price Futures Group. “The increased gasoline supply suggests we may be seeing weaker demand or gasoline going on sale ahead of the holidays.”
The EIA data also showed a drop of 3.7 million barrels in crude inventories, compared with analysts’ expectations in a Reuters poll for a drop of 1.1 million barrels.
Prices were further hit by reports that the G7 price cap on Russian oil may be above the level at which it is trading.
The G7 countries are considering a Russian maritime oil price cap in the $65-70/bbl range, according to a European official on Wednesday.
Meanwhile, Urals crude delivered to northwest Europe is trading around $62-63 a barrel, though it’s higher in the Mediterranean at around $67-68 a barrel, according to reports. data from Refinitiv.
As production costs are estimated at around $20 a barrel, the cap would still make it profitable for Russia to sell its oil and thus avoid a supply shortage on the world market.
A senior US Treasury official said on Tuesday that the price cap will likely be adjusted a few times a year.
The news added to concerns over demand from major crude oil importer China, which is grappling with a rise in COVID-19 cases, with Shanghai tightening rules late Tuesday.
Additional pressure came from a OECD Economic Outlook anticipating a deceleration in global economic expansion next year.
“On the bright side, the OECD does not see a global recession and maybe that has helped oil prices and stocks strengthen further,” said analyst Tamas Varga of PVM Oil Associates.
The price found some support after minutes from the Federal Reserve’s November meeting showed that most policymakers agreed that it would soon be appropriate to slow interest rate hikes.
(This story has been reclassified to correct garbled text in first paragraph)
Additional reporting by Rowena Edwards in London, Sonali Paul in Melbourne and Isabel Kua in Singapore; edited by Louise Heavens, Kirsten Donovan, David Gregorio and Barbara Lewis
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