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Oil extends gains as G-7 leaders assess Russian oil price cap

(Bloomberg) — Oil rose for a third day as threats to global output compounded already red-hot markets for physical supplies, but the Group of Seven agreed to see a cap on Russian oil prices.

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West Texas Intermediate futures rose to trade near $112 on Tuesday. He said ministers should urgently examine how G-7 leaders can curb Russian oil and gas prices, with government data showing Urals appreciated relative to Brent crude.

The most notable movements in recent times have been in more specialized market scales. The so-called dated-to-frontline swap — an indicator of strength in the key North Sea market that underpins most of the world’s crude prices — hit a record high of more than $5 a barrel. The rally comes amid mounting supply disruptions in Libya and Ecuador, exacerbating ongoing market tightness.

“We’re in a crunch period, it’s hard to see any meaningful price relief for crude,” John Kilduff said. With China easing its Covid restrictions and starting up its independent refineries, “we are going to have another demand for crude oil” as China relaxes its Covid-19 restrictions.

Oil is up nearly 50% this year, but strength in physical markets has countered a sharp slide in headline prices in recent weeks. Although fears of a global economic downturn weigh on the future, demand remains robust for now. US retail gasoline prices remain at record highs, causing pain for consumers. The recovery from Covid-19 and a lack of refining capacity to make fuels continue to keep prices at record highs.

The tight supply situation in 2018 is revealing itself in the WTI-Brent spread, which widened to $6.19, the widest in nearly three months. “European demand will remain robust, especially as natural gas supplies deplete, while North American demand for crude is weakening,” said Ed Moya, senior market analyst at Onda.

Oil also rose as broader sentiment was boosted by China’s move to halve the time new arrivals must spend in isolation, the biggest change yet to its pandemic policy.

Those traveling to China must spend seven days in centralized quarantine, then have their health monitored for another three days at home, according to government protocol. This compares to the current 14-day hotel quarantine in many parts of China and previously 21-day isolation.

The prospect of additional supply from OPEC’s two main producers is limited. French President Emmanuel Macron told US President Joe Biden that the United Arab Emirates and Saudi Arabia are already pumping as much as possible. Macron was broadcasting a conversation he had with UAE Ruler Sheikh Mohammed bin Zayed. OPEC+ ministers will meet on Thursday.

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