Oil prices fell more than 4% on Wednesday as Group of Seven (G7) countries looked to cap price caps on Russian oil, where it is currently trading and in the United States by more than analysts expected. Gasoline is made in the form of inventory.
Brent futures for January delivery fell $3.67 to $84.69 a barrel at 11:07 a.m. ET (16:07 GMT), a loss of 4.2%. US crude fell $3.56, or 4.4%, to $77.39 a barrel.
Both the contracts had gained more than $1/bbl earlier in the session.
According to the Energy Information Administration, US gasoline stocks have increased by 3.1 million barrels. Analysts had forecast a build of 383,000 barrels.
“The build in gasoline has been kind of a shock,” said Phil Flynn, an analyst with Price Futures Group. “The increase in gasoline supply suggests that perhaps we are seeing demand weakening or gasoline going on the rack before the holidays.”
EIA data also showed a 3.7 million barrel draw in crude inventories, while analysts in a Reuters poll were expecting a draw of 1.1 million barrels.
Prices were also affected by reports that the G7 price cap on Russian oil could be above the level at which it is trading.
G7 nations are looking at a price cap of $65-70/bbl on Russian marine oil, according to a European official on Wednesday.
Meanwhile, Urals crude delivered to northwest Europe URL-NWE-E is trading around $62-$63/bbl, while in the Mediterranean URL-E it is around $67-$68/bbl, according to Refinitiv data. But there is more.
Because production costs are estimated to be around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and thus prevent a supply shortfall in the global market.
A senior US Treasury official said on Tuesday that the price cap would probably be adjusted a few times a year.
The news added to concerns China, the top importer of crude, which is battling a surge in COVID-19 cases, tightened rules in Shanghai late Tuesday.
Adding to the pressure was an OECD economic outlook that sees a deceleration in global economic expansion next year.
“On the bright side, the OECD does not envisage a global recession and this has probably helped further strengthen oil prices and stocks,” said Tamas Varga, analyst at PVM Oil Associates.
Varga said the market was also waiting ahead of the US Federal Reserve’s November policy meeting at 1900 GMT for clues on a possible economic contraction and further rate hikes.