The trend of the international oil market is unpredictable

Recently, the international crude oil market has encountered variables due to the intertwined impact of multiple factors
.
On December 2, EU member states passed a resolution setting a price cap
of $60 per barrel for Russian seaborne oil.
Subsequently, the G7 members and Australia said they agreed to
set a price cap on Russian seaborne oil.
The decision came into effect
on December 5 together with the EU embargo on Russian oil.
Subsequently, the relevant spokesman of the Russian government said that it would rather reduce production than comply with the price ceiling
set by the above-mentioned countries.
On the other hand, on December 4, the Organization of the Petroleum Exporting Countries (OPEC) and other producers involved in the production cuts (OPEC+) decided at their monthly meeting to maintain their current production policy
.

Due to the further restrictions on Russian oil exports, market participants had predicted that international oil prices would fluctuate
sharply after OPEC maintained production cuts and Russia restricted exports.
However, the market gives a completely different answer
.
On December 5, international oil prices continued to fall
.
By December 8, light crude futures on the New York Mercantile Exchange closed at $71.
46 per barrel, and London Brent crude futures closed at $76.
15 per barrel, down $9.
09/barrel and $9.
28/barrel respectively from November 30, which was very different from the
market's previous forecast.
However, market participants still said that international oil prices will be volatile
in the future.

The EU limits the price of Russian oil exports

On December 2, after a long gestation period, the EU finally passed a price cap
on Russian seaborne oil.
The resolution adopted by EU member states on the same day decided to set a price cap of $60 per barrel for Russian seaborne oil, which came into effect
on December 5.
EU member states said they did not expect any price cap revisions to be retroactive, allowing compliant transactions
reached before the cap change.
In addition, the EU states: "The Price Cap Alliance may also consider further action to ensure the effectiveness of
the price cap.
" But details of possible further action were not disclosed
.

According to Reuters, the EU is following the price cap proposed by the G7 this time, aiming to reduce Russian oil revenues on the one hand, while preventing global oil prices from soaring
after the EU embargo on Russian crude oil came into effect.
The G7's price cap will allow non-EU countries to continue importing Russian seaborne oil, but unless Russian oil sells below the price cap, the G7, EU and Australia will prohibit shipping, insurance and reinsurance companies from servicing
Russian oil globally.
However, Poland has long resisted the ceiling
.
The country asked that cap be as low as possible to squeeze Russia's revenues
.
However, Poland's ambassador to the EU, Sados, said Poland currently supports the EU's proposal
after joining a mechanism to keep the price ceiling of Russian crude oil at least 5% below the market price.

European Commission President Ursula von der Leyen said: "The price cap will significantly reduce revenues in Russia
.
This will help us stabilize global energy prices and benefit
emerging economies around the world.
The cap will be "adjusted over time" to respond to market developments
.
Since the world's most important shipping and insurance companies are all in the G7 countries, the price cap will make it difficult for Russia to sell oil
at higher prices.

In addition, on December 7, the European Commission also proposed a ninth round of sanctions against Russia, which would impose new export controls and restrictions
on dual-use goods such as critical chemicals and nerve agents produced in Russia.

Russia threatens to cut oil production

After the EU passed and came into effect the price export cap on Russian oil, Russian Deputy Prime Minister Alexander Novak said that as the world's second largest oil exporter, even if it has to cut production, Russia will not sell oil
according to the price ceiling set by Western countries.

On December 4, Novak said the move by Western countries was a gross interference that violated the rules of free trade and would trigger supply shortages and destabilize global energy markets
.
"We are looking at mechanisms to ban the use of price cap instruments, regardless of the level set
," Novak said.
Because such intervention could further destabilize the market
.
We will only sell oil and oil products to countries that are willing to cooperate with us in market conditions, even if we have to reduce production
slightly.
Novak said that price caps set by Western countries could trigger turmoil in the oil market and could affect other countries other
than Russia.

Since the escalation of the Russian-Ukrainian conflict in February this year, the trading price of Urals blended oil, the indicator data of Russian crude oil prices, has been "discounted"
relative to international oil prices.
According to Reuters data, on the day of the price limit order on December 2, the price of Urals crude oil was about $
61.
30 per barrel.
And as of Dec.
8, according to Trading According to the Economics website, the price of Urals crude oil is $52.
71 per barrel
.

However, Russian media said that the EU's "price limit order" for Russian oil is difficult to work
.
Russia will refuse to export oil by sea to the EU, but this does not mean that Russia will completely stop oil exports to the EU, it will continue to supply oil
to Central and Eastern European countries, especially Hungary.
In addition, oil shipped by sea can be exported to other countries and then shipped to EU countries, where the price of oil imports will rise
.
In addition, Russia will seek to continue to increase exports
to Asian countries.
Ultimately, the behavior of market participants will make the price cap less important
than now expected.

OPEC takes a wait-and-see approach

While the European Union passed the price cap on Russian oil, OPEC+ is also considering crude oil production cuts
.
On December 4, OPEC+ agreed to maintain existing oil production
.
Overall, oil-producing countries as a whole are in a wait-and-see attitude and will continue to assess the impact
of the West on Russian oil price limits and changes in market demand.

Previously, in order to ensure the high level of international oil prices, OPEC+ carried out several rounds of production
restrictions.
However, judging from the trend of international oil prices since September, the effect of sharp production cuts in oil-producing countries is not obvious, and international oil prices fluctuate
downward.
In its November oil market report, OPEC explained that widespread high inflation, tightening monetary policy by major central banks, high debt levels in many economies, tighter labor markets and continued constraints in supply chains have increased world economic uncertainty, while geopolitical uncertainty and weak economic activity have dampened demand
.

Around December 5, analysts said that the current international market is facing huge geopolitical risks, and bearish and positive factors are intertwined, and major oil-producing countries hope to "keep a low profile" and are still waiting to assess changes
in market demand.
Market participants believe that the OPEC+ meeting coincides with the decision of the European Union and the G7 to set a cap on Russian oil exports, and the market's concern that Russia may cut production sharply and lead to market supply cuts has boosted oil price bullishism
.

However, contrary to the expectations of market participants around December 5, international oil prices have fallen
sharply in the past week.
Market participants said that because the US economy is still strong, the market's optimistic expectations for the Fed to slow down interest rate hikes have been frustrated, which is the main reason
for the current decline in international oil prices.
Data released by the American Institute for Supply Management on the same day showed that the US service industry prosperity index in November was significantly higher than market expectations
.
Heightened concerns about the Federal Reserve's continued tightening of monetary policy led to lower prices of risky assets, including crude oil futures
.

However, some market participants insist that oil prices will be volatile
.
Craig Elram, a market analyst at U.
S.
foreign exchange broker Chubb Corporation, expects an increased
risk of large fluctuations in crude oil prices in the near future.
Amrita Sen, research director of Energy Vision Consulting, believes that there are huge unknowns in the current international crude oil market, so it is prudent for major oil-producing countries to maintain policy stability rather than increase market volatility
.
Major oil producers are expected to take action to increase or decrease supply
, if needed.