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Despite the swift decline in prices, the European Union has proposed new measures to prevent extreme price spikes in energy derivatives, and to use the EU’s purchasing power as leverage when negotiating with global gas suppliers.
And while concerns of a supply shortage have moderated, traders are still worried about security in the medium term amid the growing risk that Russia will cut off flows into Europe completely.
“The market seems less concerned about supply in the near term, but is much more concerned about 2023 supply and the region’s ability to build adequate storage ahead of the 2023-24 winter in the absence of Russian supply,” said Warren Patterson, head of commodities strategy at ING.
“With the 2022-23 heating season still ahead of us, it is important that the market doesn’t get too complacent about the supply/demand picture in the near term.”
Fuel price relief
Oil prices also fell amid reports that the Biden administration is planning to release up to 15 million barrels from the US strategic petroleum reserve as part of a response to production cuts announced by the Organisation of the Petroleum Exporting Countries and its ally Russia.
The move would be an extension of the program announced earlier this year to release 180 million barrels of crude from the reserve to lower petrol prices for Americans in response to Russia’s invasion of Ukraine.
About 165 million barrels have been delivered or put under contract since the program was put into effect, according to Bloomberg.
The additional reserve release is expected to have a minor effect on oil prices, according to National Australia Bank’s head of commodities research, Baden Moore.
“[It] is equivalent to 15 days of lost supply from the estimated impact of OPEC+ supply cuts,” he said.
The US government is also set to announce that it will restock the strategic reserve, which fell to a 38-year low, when oil prices are at $US67 to $US72 a barrel.
West Texas Intermediate futures dropped 3 per cent to settle below $US83 a barrel.
Crude prices have been volatile this month as traders digest OPEC’s decision to cut output by 2 million barrels a day, beginning in November.
This will take place against a backdrop of softening fuel demand as China pursues its COVID-zero strategy, and central banks continue to tighten monetary policy.
“President Xi has made it clear that China will continue to follow a zero-COVID policy, which raises uncertainty over Chinese oil demand through 2023,” Mr Patterson said.
“Recession concerns elsewhere only add to the market’s uncertainty.”
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