DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session lower, with the international crude benchmark sliding towards $85 bbl after European leaders agreed to cap the price of Russian crude oil exports at $60 bbl, cementing the case for a minimal disruption to Russian oil production next year. The deal further raised expectations for the Organization of the Petroleum Exporting Countries and partners to roll over current production cuts into early 2023 amid lackluster demand in Asian markets.

Saudi oil exports to China fell sharply in November, according to tanker-tracker data, down to 1.6 million bpd from 2 million bpd recorded in the prior month. The decline was largely realized on the back of China's zero-COVID policy that is restricting personal mobility and business operations across the country's largest cities. Although Chinese authorities pledged this week to rectify unnecessary lockdown measures, traders remain skeptical that public assurances will turn into real policies. Chinese refiners pulled back on some of the purchased December crude cargoes from Saudis and Russians amid regulatory uncertainty.

Faced with those headwinds, OPEC+ will likely keep its current production quotas intact into early 2023 to better understand demand losses across Asian markets. The alliance, which includes Russia and nine non-OPEC members, will meet virtually on Sunday (12/4) to determine their next policy steps.

OPEC+ previously agreed to curb production by 2 million bpd in early October that resulted in a sharp rebuke from U.S. and European leaders, who had pushed for more oil to lower prices as they struggle to bring down inflation. In that context, the EU agreement to cap the price of Russian oil exports at $60 bbl is a step in the right direction as it minimizes the potential losses to Russian oil production.

The $60 bbl price level is roughly in line with what Russia's crude benchmark, Urals, is being sold for on the global market. It remains unclear whether Moscow will agree to sell oil under the price cap mechanism, but early reports indicate that it has been considered in the upper echelons of the Kremlin.

Poland this morning dropped its opposition to the price cap, having wanted a price cap substantially lower in exchange for additional sanctions on Russian banks and individuals. Further details of the agreement are yet to be revealed.

In financial markets, the U.S. dollar index settled Friday's session lower against global peers after initially spiking 0.6% in reaction to a better-than-expected November jobs report that is bad news for the Federal Reserve that is trying to subdue economic demand. The U.S. economy added a robust 263,000 new jobs last month and unemployment rate held steady at 3.7%, according to the Labor Department. Economists had expected the pace of hiring to slow to job growth of 200,000 in November. What's more surprising, hourly wages unexpectedly spiked 0.6% from the prior month -- double what economists had expected. This came as a serious knock against the Fed's efforts to rein in inflation.

A recent wave of layoffs announced by large tech companies is yet to spread into the larger economy, with 80% of all jobs created occurring in the service sector. In November, there were 52,771 job cuts announced by technology firms, according to Challenger, Gray and Christmas data released Thursday morning. That represents the highest monthly total for the sector since 2000. Despite those losses, weekly jobless claims have barely budged in recent weeks and remain at levels seen during healthy economic times.

On Thursday, the Labor Department reported weekly unemployment claims dropped by 16,000 to 225,000 for the week ending Nov. 26, while continuing claims increased to 1.61 million from 1.56 million for the week ending Nov. 19. New job openings also dropped to 10.3 million vacancies as of Oct. 31, down 353,000 from September and 760,000 lower than a year ago. That left 1.7 job openings per available worker for the month.

At settlement, West Texas Intermediate January contract slid below $80 bbl, down $1.24 on the session, and February Brent futures on ICE dropped $1.31 to $85.57 bbl. January RBOB futures on NYMEX slid to $2.2804 gallon, down $0.0616, and the January ULSD contract fell $0.0939 to $3.1685 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com