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Oil Slips as Traders Weigh Up Saudi Price Cuts, G-7 Crude Ban

(Bloomberg) — Oil dipped as investors weighed a pledge by the Group of Seven nations to ban imports of Russian supplies against a cut in official prices by Saudi Arabia and the impact of China’s disruptive lockdowns.

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West Texas Intermediate traded below $109 a barrel, after earlier swinging between a gain of 0.7% and losing as much as 1.7%. The leaders of the most-industrialized countries made the vow on axing imports from Russia in response to President Vladimir Putin’s war in Ukraine. A similar plan by the European Union, or EU, has yet to be finalized amid objections from Hungary.

Saudi Arabia cut prices for buyers in Asia as coronavirus lockdowns in China weigh on consumption in the top importer. State-controlled Saudi Aramco lowered prices for the first time in four months, dropping its key Arab Light grade for next month’s flows to $4.40 a barrel above the benchmark.

Crude has had a tempestuous year as Russia’s invasion of its smaller neighbor upended global commodity markets, lifting prices. The U.S. and the U.K. have already moved to ban imports of Russian fuel in response to the assault, but the weekend pledge by the G-7 will increase the pressure on Moscow further. Wider markets have also been roiled by the Federal Reserve’s aggressive rate hike path, adding volatility to crude trading.

“While the risk remains skewed to the upside, the latest developments are likely to keep crude oil rangebound with focus instead on refined products,” said Ole Hansen, head of commodities strategy at Saxo Bank. China’s Covid outbreak and interest rate hikes are offsetting continued supply concerns from Russia, he added.

China’s repeated attempts to halt Covid-19 outbreaks with the lockdown of urban centers including the key hub of Shanghai have curbed energy consumption. Highlighting the economic damage, Premier Li Keqiang warned at the weekend of a “complicated and grave” employment situation.

Still, oil markets remain in backwardation, a bullish pattern marked by near-term prices commanding a premium to those further out. The spread between Brent’s two nearest December contracts was at $13.75 a barrel, close to the level seen in the initial weeks after Russia began its invasion.

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